Canadian Dollar Down as CPI Falls for Fourth Straight Month, Bank of Canada Rate Decision Next Week

The Canadian dollar eased back on Friday after the release of the nation’s consumer price index (CPI) fell for the fourth straight month in September, the longest series since 1953, as energy prices remain low relative to a year ago. Indeed, the annual CPI rate fell to -0.9 percent, but on the other hand, the annual rate of the Bank of Canada’s core CPI eased back less than expected to 1.5 percent from 1.6 percent. Nevertheless, the data adds to evidence that the central bank will leave rates unchanged next Thursday, especially as they’ve already said in recent months that they would maintain a neutral stance through June 2010 and indicated that the Canadian dollar’s strength remained a threat to not only growth, but the return of inflation back to target. Overall, indications that the Bank still sees downside risks for inflation could weigh on the Canadian dollar, but as we’ve seen in the past, the currency is more responsive to changes in the economic outlook.