TORONTO – The Canadian dollar closed lower Tuesday as Ottawa announced it will have a bigger than expected surplus in two years.
The Canadian dollar was down 0.14 of a cent from Friday’s close to 95.3 cents US. The Bank of Canada was closed Monday for the Remembrance Day holiday.
Finance Minister Jim Flaherty’s latest fiscal projections show a $3.7-billion surplus in the 2015-16 fiscal year, almost $3 billion more than predicted in the March budget.
Even so, that could still be a conservative estimate, since Flaherty is subtracting $3 billion from the projections in case things turn out worse than he expects.
Canadian trade figures are expected Thursday and manufacturing sales on Friday.
The loonie was also under pressure from falling commodity prices and a stronger U.S. dollar on speculation that the U.S. Federal Reserve will be cutting back on its bond purchase program.
There has been growing uncertainty about when the Fed might start tapering its US$85 billion of monthly bond purchases, particularly after strong employment and economic growth reports released last week.
Dallas Federal Reserve President Richard Fisher told CNBC Tuesday that the “program cannot go on forever.”
Traders also looked ahead to Thursday when the U.S. Senate banking committee will quiz Janet Yellen, President Barack Obama’s candidate to become the next head of the U.S. central bank.
Growing speculation about Fed intentions has also been reflected in the bond markets where the benchmark U.S. 10-year Treasury yielded 2.78 per cent, up from 2.6 per cent from last Thursday when the GDP report came out. That yield stood at 1.6 per cent in May, just before Fed chairman Ben Bernanke first mentioned that the central bank would be tapering its asset purchases, and went up as high as three per cent in September.
Prices for oil and copper fell after China’s leaders finished a closely watched policy meeting Tuesday with a promise to give market forces a bigger role in the country’s state-dominated economy. But they failed to produce dramatic reforms to overhaul a worn-out growth model.
December crude on the New York Mercantile Exchange declined $2.10 to US$93.04 a barrel while December copper in New York shed three cents to US$3.23 a pound.
Speculation over Fed stimulus intentions continued to punish gold prices and December bullion faded $9.90 to US$1,271.20.