The Canadian dollar closed lower Tuesday as strong U.S. data on manufacturing, housing and consumer confidence reinforced the view that the U.S. Federal Reserve will move to ease up on one of its key stimulus programs.The loonie slipped 0.21 of a cent to 95.16 cents (U.S.) amid rising U.S. bond yields.
The U.S. dollar appreciated after the Standard & Poor’s/Case-Shiller 20-city home price index showed that U.S. home prices jumped 12.1 per cent in April from a year ago. The index also showed a 2.5 per cent increase in April from March, the biggest month-over-month gain on records dating to 2000.
Also, the U.S. Commerce Department said new-home sales rose 2.1 per cent last month from April to a seasonally adjusted annual rate of 476,000, the highest level since July, 2008.
Other data showed that orders for durable goods increased 3.6 per cent last month, matching April’s gain, but it was also much stronger than most economists had expected.
And Americans’ confidence in the economy rose to its highest level in more than five years as the Conference Board said its consumer confidence index jumped to 81.4 in June from 74.3 in May.
The resource-based Canadian currency has sustained a string of sharp losses lately in the face of a greenback that has strengthened since U.S. Federal Reserve chairman Ben Bernanke indicated last week that the central bank could be set to start winding up a key element of its economic stimulus. Those purchases of $85-billion a month have kept long-term rates low and fuelled a rally on many stock markets.
Yields have spiked to almost two-year highs – as much as 2.6 per cent on Monday and down to about 2.58 per cent Tuesday morning. The yield on the benchmark 10-year Treasury stood at 2.25 per cent last Wednesday before Fed chairman Ben Bernanke indicated that the Fed could start winding up the bond-buying program later this year.
Traders also gauged the effect from China raising its interbank lending rate to over 13 per cent as part of an effort to trim off-balance-sheet lending that could threaten the financial stability of the world’s second-largest economy. But markets feared the move could also hurt economic growth. China’s major state-owned banks are unwilling to lend to any but their biggest clients, so the vast majority of smaller businesses must rely on informal lending.
Traders were reassured on that front Tuesday after comments from the People’s Bank of China and other key government agencies. The central bank promised “liquidity support” if needed after a shortage of money in credit markets caused the interbank rate to spike last week. That caused fears the world’s second-largest economy might face a credit crisis.
The bank appeared to soften its tougher line on Monday, when it said markets had adequate liquidity and blamed the credit crunch on mismanagement by banks.
Commodity prices were mostly positive following a string of steep losses caused by demand concerns and the higher U.S. currency.
The July copper contract on the New York Mercantile Exchange was ahead 5 cents at $3.07 a pound, while August crude on the Nymex was 14 cents higher at $95.32 a barrel.
August bullion slipped $2 to $1,275.10 an ounce.