Canadian dollar erases early gains amid lower crude oil, copper prices

TORONTO – The Canadian dollar closed lower Tuesday amid generally lower prices for oil and metals.

The commodity-sensitive loonie gave up early slight gains to move back 0.1 of a cent to 101.35 cents US.

Oil prices erased early gains ahead of the release of data expected to show a rise of 1.5 million barrels in crude oil stocks and 2.6 million barrels in gasoline stocks last week, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

The American Petroleum Institute was releasing its report on oil stocks later Tuesday.

The February crude contract on the New York Mercantile Exchange slipped four cents to US$93.15 a barrel.

The February bullion contract gained $15.90 to US$1,662.20 an ounce after three days of losses. Gold prices have suffered in recent days because of uncertainty about whether the U.S. Federal Reserve might end its stimulus program of bond buying in the second half of 2013. Minutes from the Fed’s latest policy meeting showed a split over how long to continue the purchases amid concerns that they could destabilize the economy.

The bond buying, known as quantitative easing, has supported bullion prices because of worries the program would drive inflation higher. Gold is seen as a hedge against inflation.

The March copper contract was a cent lower at US$3.66 a pound.

The Canadian currency is already about 0.75 of a cent higher than where it ended 2012 and analysts think the loonie will head higher in 2013.

“(The Canadian dollar) is the only primary currency that consensus expects to gain ground against the U.S. dollar in 2013,” said Scotia Capital chief currency strategist Camilla Sutton, who has a fourth-quarter 2013 target of 104 cents US.

She pointed out that oil prices have advanced with the spread between Brent crude and West Texas Intermediate narrowing while an improving risk environment has pushed equities higher.

Also, recent domestic data, including Friday’s much stronger than expected employment report and the Ivey Purchasing Managers Index, “suggest that the economic backdrop is not deteriorating,” she said.

“Also, the economic outlook for both the U.S. and China has stabilized,” she added.

“In this environment Canadian dollar should be strengthening.”

In economic news, traders took in data showing that the chronic government debt crisis in Europe has pushed unemployment to record highs in the 17-country eurozone. The jobless rate hit 11.8 per cent in December, up from 11.7 per cent the previous month.

Investors found some comfort in a separate report showing business and consumer sentiment in the eurozone rose in December by more than analysts were expecting and that retail sales edged up in November. That suggests that the improvement in financial markets in those months helped economic activity stabilize.

Analysts warned, however, not to expect any imminent turnaround in the economy.