Loonie at highest level since September
Posted February 29, 2012 9:07 am.
This article is more than 5 years old.
The Canadian dollar hit a 5 1/2-month high Wednesday, supported by higher commodity prices and moves to further stabilize the debt-laden eurozone.
The Canadian dollar rose 0.78 of a cent to 101.24 cents US, its highest level since the middle of last September. Appetite for riskier currencies such as the loonie — and away from the perceived safety of the U.S. dollar — was also supported by a move by the European Central Bank to make €529.5 billion in low-interest loans to banks, the second round of a massive credit infusion. About 800 banks made bids for the loans.
“The number of banks suggest that participation was more widely dispersed across the banking sector and that the funds will be used for both funding requirements and carry trades,” said Scotia Capital chief currency strategist Camilla Sutton.
“Accordingly it is positive for risk assets.”
The first offer of three-year, low-interest credit to banks on Dec. 21 has been credited with easing fears of a financial meltdown in the eurozone due to lack of confidence with governments with too much debt and too little growth.
Banks used some of the money from the first round of loans to buy government bonds, which in turn lowered borrowing costs for hard-pressed governments.
Oil prices rose slightly after data showed that U.S. crude and oil product inventories were mixed last week. The American Petroleum Institute said late Tuesday that crude inventories rose 521,000 barrels while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of one million barrels.
Inventories of gasoline fell 916,000 barrels last week.
The April crude contract on the New York Mercantile Exchange gained 26 cents to US$106.81 a barrel.
Prices dropped more than US$3 over the last two sessions but crude is still ending February up almost 12 per cent this month, primarily over worries about Iran’s nuclear program and the possibility of supply disruptions.
Stock markets have been flat this week on worries that sharply higher crude prices could strain the U.S. economic recovery, pressure corporate earnings and worsen a recession in Europe.
Copper prices were also higher with the March contract up two cents to US$3.92 a pound. Signs of an improving U.S. economy and hopes that China will loosen lending requirements to encourage growth have boosted copper prices almost four per cent during February.
Bullion was off $3.50 to US$1,784.90 an ounce.
The dollar also found support from positive economic news from the U.S., Canada’s biggest trading partner.
A rising American economy is good for Canada as it signals a growing appetite for Canadian manufactured goods and commodities such as oil and metals.
U.S. fourth-quarter gross domestic product rose at an annualized rate of three per cent. Originally, the government reported the economy grew at a 2.8 per cent pace.
“With the economy appearing to finish 2011 with slightly more momentum, and with growth more evenly distributed, this supports our view of only a modest deceleration to a 2.5 per cent pace in the first quarter,” said CIBC World Markets senior economist Andrew Grantham.
