TORONTO – The Canadian dollar closed higher Tuesday amid strong economic data and a report predicting that the Bank of Canada will move earlier than anticipated on interest rates.
The loonie was up 0.29 of a cent to 88.87 cents US as Statistics Canada reported that retail sales rose by a better than expected 0.8 per cent in September, led by a strong showing in auto sales. Economists had expected a rise of 0.5 per cent.
And in the U.S., data showed the American economy expanded at a faster than expected annualized pace of 3.9 per cent in the third quarter. Economists had forecast that this revision to GDP would show growth slipped from 3.5 per cent to 3.3 per cent.
The rise in the Canadian dollar also came in the wake of a report from a major international organization forecasting that the Bank of Canada will begin hiking its key interest rate as early as May 2015 — months ahead of what economists have been predicting.
In its latest economic outlook, the Paris-based Organization for Economic Co-operation and Development said that inflation will return to the central bank’s two per cent target on “a sustained basis by late 2015.”
It also says the Bank of Canada’s key rate, currently at one per cent, will rise steadily after the May increase.
The OECD also called on Europe to relax its fiscal rules and for governments to spend more money, saying Europe’s sluggishness is dragging down the global economy.
Other data out Tuesday showed the Conference Board’s U.S. consumer confidence index unexpectedly fell to 88.7 in November from 94.1 in October. A reading of 96 had been expected.
Meanwhile, investors will also get information this week on how the Canadian economy is performing.
Statistics Canada releases its reading on September gross domestic product and the third quarter on Friday. Economists expect that the agency will report that GDP rose by 0.4 per cent in September after dipping 0.1 per cent in August, adding up to an annualized pace of 2.1 per cent.
On the commodity markets, oil prices fell ahead of a key meeting Thursday of the OPEC oil cartel.
The January crude contract on the New York Mercantile Exchange declined $1.69 to US$74.09 a barrel.
Prices have been hit hard since mid-summer, pressured by a rising greenback that has depressed all commodities priced in U.S. dollars, lower demand and rising crude supplies. Prices had risen as high as about US$105 a barrel during a period of heightened geopolitical worries, including the possibility that Islamic State militants could seize chunks of Iraq’s oil infrastructure.
The focus now is whether the Organization of Petroleum Exporting Countries will cut production in order to support prices.
Elsewhere on the commodity markets, March copper dropped three cents to US$2.98 a pound while December gold rose $1.40 to US$1,197.10 an ounce.