10/21/2011 08:52 EDT | Updated 12/21/2011 05:12 EST

Canadian dollar rises amid rising inflation pressures, higher commodity prices

TORONTO - The Canadian dollar advanced Friday as commodity prices strengthened and inflation numbers for September came in higher than expected.

The loonie was up 0.62 of a cent to 99.14 cents US.

In the U.S., the greenback weakened as traders looked hopefully to next week for a comprehensive solution to a crippling European debt crisis that threatens the region's banks and the economic recovery.

Traders also took in data showing higher than expected inflation in Canada.

Statistics Canada said the country’s annual inflation rate edged up a notch to 3.2 per cent last month. On a month-to-month basis, consumer prices rose two-tenths of a percentage point between August and September.

The Bank of Canada's core inflation index shot up 0.3 of a point to 2.2 per cent, the largest annual gain since December 2008, which puts core inflation above the central bank’s two per cent target for the first time since February 2010.

However, analysts say price pressures are moderating and that inflation should move lower in the current quarter.

"With the gradual deceleration in gasoline price inflation that began in the summer likely to continue, the headline rate is forecast to fall in the fourth quarter," said RBC assistant chief economist Dawn Desjardins.

"Additionally, the economy's slower than expected second-quarter performance will limit price pressures in the near term."

Commodity prices were up sharply as traders looked to the middle of next week for an agreement that would deal comprehensively with Europe's debt crisis.

Germany and France announced Thursday afternoon that in addition to Sunday’s summit of eurozone leaders, a second meeting will be held Wednesday.

Europe's two biggest economies are at loggerheads over how to make best use of the bailout fund, the so-called European Financial Stability Facility, or EFSF. While France is proposing to turn it into a bank, which would have access to unlimited credit from the European Central Bank, Germany appears reluctant to sanction such a move.

Meanwhile, Eurozone finance ministers said Friday that Greece will get its next batch of aid money amounting to €8 billion, likely by mid-November, saving the country from a potentially disastrous default. The ministers also said that they were working on a second rescue package for the debt-ridden country, which would include new aid money and contributions from the private sector.

They did not give details on the new package.

The willingness to take on extra risk pushed commodity prices sharply higher, with the December crude contract on the New York Mercantile Exchange ahead $1.33 at US$87.40 a barrel.

Copper prices recovered somewhat with the December contract ahead 17 cents to US$3.22 a pound after tumbling 20 cents on Thursday. And the December gold contract jumped $23.20 to US$1,636.10 an ounce.