Canadian dollar rises as strong economic forecast boosts commodity prices

TORONTO – The Canadian dollar inched higher Wednesday while oil and copper prices improved on a positive forecast for the global economy.

The loonie closed up 0.03 of a cent to 91.37 cents US.

The World Bank said Tuesday that the global economy is slowly picking up steam.

The bank’s twice-yearly Global Economics Prospects report said global growth is expected to firm from 2.4 per cent in 2013 to 3.2 per cent this year and 3.4 per cent in 2015. It said the momentum that countries such as the United States and Japan are building up should support stronger growth in the developing countries.

February crude on the New York Mercantile Exchange gained $1.58 to US$94.17 a barrel amid data showing a much bigger than expected 7.7-million barrel drop in supplies.

March copper gained two cents to US$3.36 a pound while February gold bullion lost $7.10 to US$1,238.30 an ounce.

Traders also awaited the afternoon release of the latest take on the economy by the U.S. Federal Reserve. The Fed has already started to taper its massive monthly bond purchases to $75 billion, a decrease of $10 billion a month, and made further tapering contingent on economic performance, particularly jobs data.

Uncertainty about Fed intentions arose after December jobs data released last Friday came far below expectations.

The new year is only two weeks old and the loonie has already fallen about three per cent to levels last seen in September 2009, making it the worst performing primary currency.

The reasons for the decline are many. One is that the greenback has gained in value as the Federal Reserve starts to back away from its massive monthly bond purchases.

But recent Canadian economic data has disappointed markets, particularly reports last week showing a rising trade deficit and December employment data showing the loss of 46,000 jobs.

The Bank of Canada’s dovish stand on interest rates has also contributed to the fall and traders are particularly looking to what the central bank has to say next week in its next scheduled announcement on interest rates. Governor Stephen Poloz has signalled the bank is in no rush to raise rates and analysts aren’t looking for a hike until next year.

In fact, some are looking for the bank to cut rates. Mark Chandler, head of Canadian FIC Strategy at RBC Dominion Securities observes that “there is a significant minority of observers believing that a shift towards an easing bias is in the cards next week and, unless the notion is dispelled, it is hard to imagine the Canadian dollar reversing some of its recent losses.”