The Canadian dollar jumped Friday to its highest level since January, with the currency-related exchange traded fund now testing its long-term resistance, after inflation exceeded the central bank’s target for the first time in over two years.
The CurrencyShares Canadian Dollar Trust (NYSEArca: FXC) was up 0.6% Friday. FXC is up 4.0% over the past three months and is now testing its 200-day simple moving average.
The Canadian currency, or colloquially known as the loonie for the depiction of the common loon on its face, strengthened to CAD1.0757 per USD Friday, the strongest level since early January.
The loonie was appreciating as traders bolstered wagers on higher interest rates, following data that revealed the consumer price index rose 2.3% in May year-over-year, reports Ari Altstedter for Bloomberg.
Core CPI, which excludes eight volatile goods like food and energy, rose 1.7%, compared to 1.4% in April.
The Bank of Canada has set an inflation target of 2%, which the inflation index reached in April for the first time since April 2012. The central bank has maintained a benchmark rate of 1% due to concerns that low inflation and weak exports will pressure the economy.
“The Bank of Canada had communicated all along any uptick in inflation is transitory, it’s just energy and food, don’t worry about it,” Greg Anderson, head of global foreign exchange strategy at Bank of Montreal, said in the article. “Well, here it is, CPI, stripped of energy and food, and it’s surging higher. It is untenable, they’re going to have to change their forecasts massively.”
Meanwhile, the iShares MSCI Canada ETF (NYSEArca: EWC) has increased 9.2% year-to-date on the strengthening Canadian economy. Since EWC is exposed to currency risks, the fund has also benefited from a strengthening loonie, which translates to a higher U.S.-dollar return. [Oh Canada: Energy Rally Lifts Country’s ETFs]
CurrencyShares Canadian Dollar Trust
For more information on the Canadian currency, visit our Canadian dollar category.
Max Chen contributed to this article.