By Allison Bennett Jan. 20 (Bloomberg) -- Canada’s dollar dropped to the lowest level in two weeks as oil fell and a report showed consumer prices rose less last month than forecast, reducing the chance the central bank will raise rates before the second half. “The numbers are suggesting people are getting nervous,” said David Watt, senior currency strategist in Toronto at Royal Bank of Canada, the nation’s biggest lender. “The Bank of Canada is heading to a tightening campaign in the third quarter -- now the debate is will they go in July or September.” The Canadian currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, depreciated 1.5 percent to C$1.0467 per U.S. dollar, the weakest level since Jan. 4, at 8:49 a.m. in Toronto, from 1.0314 yesterday. One Canadian dollar buys 95.53 U.S. cents. Consumer prices rose 1.3 percent in December from a year earlier after gaining 1 percent in the previous month, Statistics Canada said today in Ottawa. The median forecast of 26 economists in a Bloomberg News survey was for a 1.6 percent rise. The Bank of Canada’s inflation target is 2 percent. Prices fell 0.3 percent last month from November, more than forecast. Canadian factory sales rose less than expected in November, another report showed, with energy and chemicals gaining while transportation shipments declined. Sales increased 0.1 percent to C$42.6 billion ($40.8 billion), Statistics Canada said. Economists in a Bloomberg survey forecast a 0.7 percent gain. Crude oil for February delivery dropped 1.8 percent to $77.60 a barrel on the New York Mercantile Exchange. Crude is Canada’s biggest export. Interest Rates Currency traders are betting which countries will raise interest rates as the global economy shows signs of emerging from the worst recession in more than half a century. Investors tend to favor the currencies of nations whose borrowing costs are rising because yields are higher. Canada’s central bank held the benchmark overnight lending rate at a record low 0.25 percent yesterday. Policy makers reiterated they will keep the rate there through June, barring a change in the inflation outlook, and repeated that the Canadian currency’s “persistent strength” hampers economic recovery. The target lending rate was 4.5 percent when the bank began cutting it in December 2007. The loonie gained 22 percent versus the U.S. dollar over the past year and was among the top six of the greenback’s 16 most-traded counterparts tracked by Bloomberg. It trailed the Australian and New Zealand dollars, South Africa’s rand, the Brazilian real and Norway’s krone. Canada and the other nations whose currencies are in the top six rely on commodities for export revenue. To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

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