Loonie rises, greenback lower as growing expectations for more Fed stimulus
The loonie was also supported by rising commodity prices and advanced 0.05 of a cent to 100.92 cents US. (file image)
By Malcolm Morrison, The Canadian Press
Published Thursday, August 30, 2012 11:28AM CST
TORONTO -- The Canadian dollar was higher Thursday as the greenback retreated on growing conviction that the U.S. Federal Reserve will embark on another round of stimulus to support what it sees as a flagging economy.
The loonie was also supported by rising commodity prices and advanced 0.05 of a cent to 100.92 cents US.
Minutes from the Fed's Aug. 1 meeting showed many members felt further support would be needed "fairly soon" unless the U.S. economy improved significantly.
The minutes didn't say what steps might be taken. The boldest move would be to launch a new program of printing more dollars to buy bonds in an attempt to lower long-term interest rates. That, in turn, would encourage more borrowing and spending.
The Fed makes its next interest rate announcement Sept. 13. The central bank could also announce new stimulus measures at that time.
Commodity prices headed higher in the wake of the Fed announcement as the October crude contract on the New York Mercantile Exchange gained 51 cents to US$97.77 a barrel.
September copper was five cents higher at US$3.51 a pound while December bullion moved up $20.50 to US$1,661 an ounce.
However, optimism from the Fed minutes was tempered by some dismal economic news from China and Europe.
A preliminary reading of manufacturing activity in China indicated that government stimulus efforts have not been able to neutralize global headwinds. HSBC's manufacturing purchasing managers' index (PMI) fell to a nine-month low of 47.8 in July, as weak global demand hit Chinese export orders. New export orders fell at their fastest rate in three years.
Traders have been hoping that the Chinese central bank might take further measures to stimulate the slowing economy. But some analysts think that policy-makers are likely to wait until after the 18th Communist party congress, scheduled for October, to take major action.
And in Europe, economic indicators also came in weak as the PMI of overall economic activity in the 17-country eurozone was at 46.6 points in August, only a tiny improvement from the previous month's 46.5 and still very low. A number below 50 means the economy is contracting.
Analysts said the number shows the eurozone is firmly in recession, which will continue to hurt efforts to reduce government and boost investor confidence.