MRO Magazine

Canadian dollar closes above parity on higher commodities, manufacturing data


February 6, 2012
By PEM Magazine

TORONTO — The Canadian dollar has closed above parity with the U.S. dollar for the first time since October, with currency traders encouraged to take on more risk following positive manufacturing data for China and the United States.

The loonie rose 0.37 of a cent to close at 100.09 cents US.

Canada’s dollar has been driven down in recent months by a combination of factors including the European debt crisis and slowing economic conditions, dropping to as low as 95.37 cents US on Nov. 23.

The Bank of Canada said as recently as Jan. 17 that it expects the pace of growth going forward will be more modest than previously forecast, largely due to deteriorating economic performance outside of Canada.


The loonie has also been subject to volatility as investors turned to the perceived safety of the U.S. dollar at the expense ofother currencies.

But on Wednesday, traders were encouraged by manufacturing data from the United States and China, the world’s two biggest economies and major customers for Canada.

The Institute for Supply Management said that its U.S. manufacturing index for January came in at 54.1, which showed continuing expansion but the reading was slightly short of economist expectations for a 54.5 reading.

And the state-affiliated China Federation of Logistics and Purchasing said its purchasing managers index for the manufacturing sector rose 0.2 points to 50.5 from December’s 50.3 on a 100-point scale on which numbers above 50 indicate growth.

HSBC Corp. said its HSBC China Manufacturing PMI was little changed at 48.8 from December’s 48.7, suggesting a “moderate deterioration.”

The Chinese government moved to slow the economy in 2011 to deal with high inflation, partly through tightening lending requirements at banks. Further evidence that the government has managed to steer the economy to a soft landing raised hopes that it will loosen lending in order to encourage growth.

Meanwhile, the Chinese government has announced stimulus for the struggling private business sector in the form tax breaks and a US$2.5-billion fund to finance new small businesses.

China has been a main pillar of support for a global economy still struggling to recover from the financial crisis and subsequent recession of 2008. Its strong economic growth has been a big plus for oil and metals prices.

Metals advanced following the manufacturing reports with the March contract for copper ahead four cents at US$3.83 a pound. China is the largest consumer of copper, which is viewed as an economic bellwether because it is used in so many businesses.

Bullion prices were also higher with the April gold contract in New York up $9.10 to US$1,749.50 an ounce.

But March crude on the New York Mercantile Exchange fell 87 cents to US$97.61 a barrel.

Oil prices shed early gains after the latest U.S. inventory figures showed a higher than expected increase in crude supplies. The Energy Information Administration reported inventories rose by 4.2 million barrels in the week ended Jan. 27, against expectations of a rise of three million barrels.

As far as how high the loonie could go in the short term, “there is a lot of wait and see for what transpires down the pipe,” said Scotia Capital chief currency strategist Camilla Sutton.

“We have employment on Friday for both the U.S. and Canada so that’s kind of the next big milestone go get through.”

Statistics Canada was expected to report that the economy created about 24,000 jobs during January.

In the U.S., traders were encouraged Wednesday by employment data prior to the release of the U.S. non-farm payrolls report for January. Payroll firm ADP said that the American private sector created 170,000 jobs last month. Economists were looking for the U.S. economy to have created a total of 150,000 jobs in January.

“The detail of the report showed further solid intakes of staff at small- and medium-sized firms, although employment at large companies was broadly unchanged,” said CIBC World Markets economist Andrew Grantham.

“By sector, goods and service sector firms continued to take on staff, albeit both at a slower pace than in December.”