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Canadian dollar below 90¢ again as markets speculate on interest rate moves Add to ...

These are stories Report on Business is following Friday, Feb. 21, 2014.

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Loonie slips
The Canadian dollar is below the 90-cent mark again today, with a report on inflation giving the currency only the the tiniest of gains.

The loonie, as the country’s dollar coin is known, sank below 90 cents U.S., regaining just some ground to stand at about 89.9 cents by late in the day, after Statistics Canada's readings on consumer prices in January and retail sales in December.

Markets are watching such measures closely amid speculation over where the Bank of Canada might be headed.

The central bank is particularly focused at this point on persistently low inflation. And while some players are betting it will yet cut its benchmark rate from the current 1 per cent, most don’t see that happening.

Inflation now stands at its highest since the summer of 2012, but is expected to dip again this month but inch higher again over time.

“The near-term gyrations in the inflation measures will not significantly affect the bank’s policy stance as it is the medium-term outlook that drives their policy,” said assistant chief economist Dawn Desjardins of Royal Bank of Canada.

“In that regard, we expect inflation to drift higher."

When you take everything into account, Ms. Desjardins said, the central bank will probably hold its key rate steady for the rest of the year, and bring in a hike in the second quarter of next year.

“The BoC expressed increasing concerns about low inflation at its latest policy meeting, but today’s number is in line with the outlook presented in the monetary policy report and is therefore unlikely to change its view,” added Charles St-Arnaud of Nomura Securities.

“We continue to assign a 30-per-cent probability to a rate cut in the next six months. However, we believe that further underperformance of inflation is unlikely to justify a cut, and that a weakening of the growth outlook would be required to push the BoC to lower rates.”

The loonie has slipped markedly over the course of the past year, but has ticked up recently.

Now, said chief currency strategist Camilla Sutton of Bank of Nova Scotia, a string of weak economic indicators and an increasingly dimmer view of the currency is driving it back down.

Consumer prices pick up
Canada’s annual inflation rate now stands at 1.5 per cent, slightly above what economists had projected and up from 1.2 per cent in December.

Juicing the pick-up in consumer prices in January were higher costs for shelter, which climbed 2.1 per cent as renters paid more and homeowners paid more for insurance. And everyone paid more for electricity.

So-called core prices, which strip out volatile items and help guide the Bank of Canada, rose 1.4 per cent in January, inching up from December’s 1.3 per cent.

“In seasonally adjusted terms, prices were only up 0.2 per cent month-over-month led by higher shelter costs, so this wasn’t really that much of a break in trend,” said chief economist Avery Shenfeld of CIBC World Markets.

“But the higher year-over-year rates in January provide a cushion that will dampen any shock from an expected drop in February CPI yearly rates (as a big number drops out from the prior year), making it less likely that markets will reinstate expectations for BoC easing.”

Retail sales fall
Blame the Polar Vortex, or just the fact that we live in Canada, but December’s weather kept shoppers at home.

Retails sales across the country fell in December by 1.8 per cent, Statistics Canada said today.

In terms of straight volumes, sales fell 2.2 per cent.

That was “widespread” given declines in 9 of 11 sectors measured by the agency, or 79 per cent of all sales.

"The retail report was more like a weather report than a reflection of the true state of the Canadian economy," said senior economist Krishen Rangasamy of National Bank Financial, referring to the December weather and ice storm.

The biggest loss came in the auto and related parts industry, as new car dealers lost out to the tune of 3.6 per cent.

“Despite December’s monthly decline, sales at new car dealers were up 6.5 per cent in 2013, the largest annual gain since 2010,” Statistics Canada said.

G20 finance summit in focus
With every summit comes the leak of the final statement before the darn thing even starts.

No exception with this weekend’s gathering in Australia of G20 finance ministers and central bankers.

As The Globe and Mail’s Iain Marlow reports from Sydney, OECD chief Angel Gurria said at an opening session today that the recent turmoil in emerging markets is a “wake-up call” for developing countries to get their act in gear where reforms are concerned.

And as Bloomberg News reports, a draft of the final statement will commit the group, again, to “new measures to significantly raise global growth.”

The final version comes Sunday.

“As usual, the draft communiqué for the weekend’s G20 meeting has been leaked, and does not appear to contain anything of immediate market significance,” said RBC’s Mr. Cole.

“The statement promises ‘concrete action to bolster growth’ but also acknowledges the need for ‘accommodative monetary policies in advanced economies to normalize in due course.’”

Follow Mr. Marlow's coverage of the summit through the weekend.

The power of pizza
I bought my kids dinner from Pizza Hut last night, and I need everyone to know that was before the chain issued this statement this morning:

“Pizza Hut ‘Aphrocheesiac’ is a seductive combination of parmesan and the natural aphrodisiac qualities of chili. ‘Aphrocheesiac’ captures the sensory appeal of pizza love - and the chain is gifting 100 bottles to its most ardent fans starting on Feb. 21, 2014.”

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