The Canadian dollar closed higher Thursday as the latest U.S. data raised hopes for a stronger economic performance in 2014.
The loonie ended up 0.1 of a cent at 89.56 cents (U.S.) after a report that U.S. gross domestic product rose by an annualized rate of 3.2 per cent in the fourth quarter, broadly in line with expectations.
The growth was slightly below the 4.1 per cent rate registered in the July-September period. For all of 2014, many analysts are forecasting U.S. GDP growth of 3 per cent or better.
Economists expect Statistics Canada to report Friday that gross domestic product in Canada increased by 0.2 per cent in November, slightly lower than the 0.3 per cent gain in October.
The loonie’s gain followed a drop of almost one-fifth of a cent Wednesday in the wake of the latest move by the U.S. Federal Reserve to cut back on its stimulus measures.
The Fed is cutting its bond purchases by another $10-billion to $65-billion a month. It was the central bank’s second such move to cut back the program to help keep long-term interest rates low.
The cuts have also drawn money out of many emerging markets and in turn put pressure on currencies in countries such as India, South Africa, Russia and particularly Turkey.
The Canadian dollar has tumbled more than 4 cents so far this year.
The slide has come amid disappointing Chinese manufacturing data, a worsening Canadian trade deficit and employment picture and U.S. dollar that has picked up in value.
It’s hard to say how low the currency could go this year, but BMO Nesbitt Burns said it could slide as low as 87 cents by mid-year – or maybe earlier.
BMO senior economist Benjamin Reitzes believes the biggest reason for the loonie’s slide is likely the message the Bank of Canada is sending on interest rates.
“Since Governor Poloz took the helm at the bank, each statement has become more dovish than the last,” he observed.
“He can’t go much further down that road without easing policy, and markets are pricing in slight odds of a rate cut this year.”
On the commodity markets, the March crude oil contract on the New York Mercantile Exchange rose 87 cents to $98.23 a barrel.
Metal prices were lower with the March copper contract down 1 cent to $3.23 a pound while the April gold bullion contract lost $19.70 to $1,242.50 an ounce.