Canadian and German CPI Affect on the Currencies

05/21/2009 12:01 am EST

Focus: FOREX

Canadian consumer prices in April fell more than expected to 0.4% on an annualized basis, which was the lowest in 14 years. Economists were expecting prices to ease to 0.6% from 1.2% the month prior, but a 2.5% decline in energy costs lead to a 0.1% drop in inflation during the month of April.

USD/CAD - Canadian consumer prices in April fell more than expected to 0.4% on an annualized basis, which was the lowest in 14 years. Economists were expecting prices to ease to 0.6% from 1.2% the month prior, but a 2.5% decline in energy costs lead to a 0.1% drop in inflation during the month of April. The core component also fell to 0.1% from 0.3%, which is the reading more closely watched by the BoC as clothing and shelter prices were lower by 0.6% and 1.0%, respectively. Easing inflation will allow the central bank to keep rates at their record low of 0.25%. BoC deputy governor John Murray said in a speech yesterday that "The risks of either a deflationary collapse or an inflationary spiral have been greatly exaggerated." He also expected that the central bank would keep rates at their current level for another year.

EUR/USD - German producer prices fell by 2.7% on a yearly basis, which was the biggest drop in almost 22 years. Declining cost for electricity helped push prices down by 1.4% during the month of April. Meanwhile, Italian industrial orders fell for the eighth straight month, down 2.7% in March and led by a 33% drop in foreign demand. The data shows that deflationary growth risks remain, which could lead the ECB to consider lowering their interest rates further and adding to their bond purchasing program.

By John Rivera, Currency Analyst, DailyFX.com

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