Canadian dollar rises on expectations for further Fed stimulus measures

TORONTO – The Canadian dollar was higher Thursday while the greenback weakened after the U.S. Federal Reserve indicated further quantitative easing could be on the way. This involves the central bank printing more money in order to buy up bonds.

The loonie was up 0.12 of a cent at 99.74 cents US.

Minutes of the Fed’s Oct. 23-24 policy meeting released Wednesday suggest that it might unveil a bond buying program in December to replace a program that expires at year’s end. The bond purchases would be intended to lower long-term borrowing rates to encourage spending and strengthen the economy.

A new bond-buying program would come on top of a program the Fed launched in September. It began buying $40 billion a month in mortgage bonds to try to reduce long-term rates and make home buying more affordable. It was its third round of bond purchases.

“Easy Fed policy and the expected expansion of QE support the Canadian dollar in two ways,” explained Scotia Capital foreign exchange strategist Eric Theoret.

“The first is the direct foreign exchange impact, arising from a weaker U.S. dollar, with the second being that Fed accommodation seeks to stimulate U.S. growth, thus supporting the Canadian economy as well.”

On the economic front, Statistics Canada said manufacturing sales rose 0.4 per cent in September to $49.8 billion, reflecting higher production in the aerospace industry and higher sales of primary metals.

Commodities were mixed as traders also took in news that the euro area is now in a confirmed recession. Official figures showed that the worsening debt crisis resulted in the eurozone contracting by 0.1 per cent in the July-to-September period from the quarter before as its economies, including those of Germany and the Netherlands, suffer from falling demand. That followed a 0.2 per cent fall in the previous quarter.

December crude contract on the New York Mercantile Exchange shed early gains and dipped 16 cents to US$86.16 a barrel.

December copper was up two cents at US$3.47 a pound.

Gold prices headed lower amid data showing global gold demand fell in the third quarter as investors bought fewer bars and coins and buyers in China held back because of the economic slowdown.

The World Gold Council said about 1,085 metric tons of gold was sold worldwide in the three months through September, down 139 metric tons, or 11 per cent, from a record 1,223.5 tonnes in the same period of 2011.

The 23-member council includes more than a dozen Canadian mining companies including Barrick Gold Corp. (TSX:ABX) and its spinoff African Barrick, Goldcorp Inc. (TSX:G), Iamgold Corp. (TSX:IMG) and Kinross Gold Corp. (TSX:K).

December bullion fell $14.40 to US$1,715.70 an ounce.