The Canadian dollar climbed on Thursday as risk appetite increased in the wake of the US Federal Reserves plan to buy up longer-term government debt. The currency finished at C$1.2377 to the US dollar, or 80.80 US cents, up from Wednesdays close of C$1.2463 to the US dollar, or 80.24 US cents.
The Canadian dollar shot as high as C$1.2192, or 82.02 US cents, its highest level since February 10, shortly after Statistics Canada said annual inflation jumped to 1.4 percent in February from 1.1 percent in January. The currencys jump was encouraged by short-lived sentiment that inflation concerns would make the Bank of Canada less likely to ease monetary policy further.
But economists said the rise in inflation would likely be temporary and would do little to take the central banks focus away from an economy in full recession. "Theres nothing really in the backdrop which seems consistent with dollar/Canada at C$1.22," said David Watt, senior currency strategist at RBC Capital Markets. The currency should only be seeing "modest gains because the backdrop is not all that favourable for the Canadian dollar," he added. "I think the inflation numbers were a bit of a head fake overall."
The gains that the currency sustained on Thursday stemmed from the Feds Wednesday announcement that it would inject an additional $1 trillion into the US economy, partly by buying government bonds, a move that weakened the US dollar. The Feds plans also gave increased chances that the Bank of Canada may follow suit with its own program of pumping money directly into the economy.
Higher oil prices and an eighth consecutive higher close on Torontos main stock index were also factors that helped the Canadian dollar rise. The currency moved in a C$1.23-C$1.24 range from midday to the close, a trading range that has slowly crept higher since the currency hit a 4-1/2 year low earlier this month. Increasing risk appetite has been the main cause behind the Canadian dollars rally despite a string of weak Canadian economic data.
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