The Canadian dollar closed slightly higher Wednesday while traders looked ahead to a key meeting of Group of 20 finance ministers this weekend.The loonie rose 0.09 of a cent to 99.82 cents (U.S.) amid lower commodity prices.
Exchange rates and the threat of a “currency war” are expected to feature heavily at the meeting.
Attention has been recently centred on the Japanese yen, which this week dropped to its lowest against the U.S. dollar since May, 2010.
Outgoing Bank of Canada Governor Mark Carney told a parliamentary committee in Ottawa on Tuesday that the Canadian economy would be damaged by a global currency war.
He estimated that the appreciation of the currency over the past decade or so was responsible for two-thirds of the loss in Canadian competitiveness.
However, Carney said a free-floating currency is essential to market economies, acting to absorb shocks. If the currency is fixed, the economy would need to adjust in other ways, specifically through lower real wages for workers.
On Wednesday, the yen strengthened against the dollar following a pledge by finance ministers from the G7 group of countries Tuesday to refrain from intentionally weakening their currencies.
Finance ministers said in a statement that they remained committed to exchange rates driven by the market, not government or central bank policies.
Traders interpreted the statement as a message directed at Japan, where the yen has plummeted against the dollar since Prime Minister Shinzo Abe took office and pushed the country’s central bank to relax its already ultra-loose monetary policy.
The Japanese government has not directly intervened to get the value of the yen down. But it has set in motion a string of economic policies, such as a higher 2 per cent target for Japanese inflation, that many in the markets think will lead to more money being created in Japan.
The March crude contract on the New York Mercantile Exchange gave up early gains to move down 50 cents to $97.01 a barrel amid a much-less-than-expected rise in U.S. inventories. The U.S. Energy Department’s Energy Information Administration said supplies rose by 560,000.
A survey of analysts by Platts, the energy information arm of McGraw-Hill Cos., was expecting crude stocks to have risen by 2.5 million barrels. However, other data released Tuesday had shown inventories declined last week.
April bullion on the Nymex declined $4.50 to $1,645.10 an ounce while March copper was unchanged at US$3.74 a pound.
On the economic front, U.S. retail sales ticked up 0.1 per cent last month after a 0.5 per cent rise in December. January’s increase was in line with expectations and was the smallest in three months after higher taxes cut into Americans’ wages.