Loonie sharply lower amid "dovish" Poloz remarks, tepid manufacturing data

TORONTO – The Canadian dollar closed sharply lower Monday as Bank of Canada governor Stephen Poloz struck a dovish tone during the course of a speech, while the U.S. greenback appreciated amid a mixed bag of manufacturing data.

The loonie fell 0.67 of a cent to 88.05 cents US with the currency also buffeted by oil prices at 2 1/2 year lows.

Poloz told a business audience in Toronto that the downturn that followed the 2008 financial crisis “was deep and has proved to be long lasting.”

He also indicated that it will take about two years before the Canadian economy returns to capacity.

“Again, (it’s) a suggestion that the bank is in little hurry to tighten policy and sees little need to change course to address house sector imbalances,” said CIBC World Markets senior economist Peter Buchanan.

“Quite dovish overall.”

The loonie had already been lower in the session as the American greenback advanced against other currencies and traders considered a mixed bag of manufacturing data from North America and overseas.

Royal Bank‘s manufacturing index is showing the sector expanding at a greater pace. Its Canadian manufacturing purchasing managers index registered 55.3 in October, up from 53.5 in September. Any reading above 50 indicates expansion.

RBC said the latest reading pointed to the strongest improvement in overall business conditions since November 2013.

U.S. factories were also busier in October. A private survey shows that orders, productivity and hiring all grew faster than they did in September.

The Institute for Supply Management’s manufacturing index rose to 59 last month from 56.6 in September. Any reading above 50 signals expansion. The increase reverses a drop in September.

Sixteen of 18 manufacturing industries grew last month, but while manufacturing exports grew last month they did so at a slower pace than in September.

Meanwhile, the China Federation of Logistics and Purchasing’s purchasing managers’ index dropped by 0.3 from September to 50.8. The reading was in line with expectations. The deceleration reflected a slowing of China’s economic growth to a five-year low of 7.3 per cent in the third quarter of the year.

A report into the manufacturing sector of the 18-country eurozone from financial data firm Markit was similarly downbeat. Although the October eurozone index rose to 50.6 from the previous month’s 50.3, it’s not far off contraction territory.

Tumbling oil prices also depressed the loonie — the glum overseas data helped push December crude in New York down $1.76 to US$78.78 a barrel, its lowest close since June 2012.

December copper was up two cents at US$3.07 a pound while December gold bullion declined $1.80 to US$1,169.80 an ounce.

It’s a busy week shaping up for traders with plenty of economic data to digest, including data on U.S. factory orders and Canadian data on manufacturing shipments.

Traders will also find out if the European Central Bank plans more stimulus aimed at staving off recession in the eurozone.

And at the end of the week, employment data for the U.S. and Canada will be released.