The Canadian dollar closed higher Tuesday while the U.S. currency weakened ahead of an expected announcement of further economic stimulus by the U.S. Federal Reserve. Such a move would involve the Fed printing additional money to buy up more bonds.
The loonie rose 0.08 of a cent to $1.014 (U.S.) amid data showing Canada's trade picture improved significantly in October.
Statistics Canada says the merchandise trade deficit shrank to $169-million (Canadian), which was a big improvement over the figure in September, when the deficit was $1-billion. Exports rose 1 per cent to $38.1-billion while imports fell 1.2 per cent to $38.3-billion.
Economists expect that the Fed will announce at the end of its two-day meeting Wednesday that it will begin buying $40-billion (U.S.) of long-term Treasury securities each month.
This would be on top of an existing plan announced in September that involves the Fed buying $40-billion per month in mortgage-backed securities.
The Fed's $400-billion stimulus program, known as Operation Twist, is set to expire after 2012. It involved the Fed buying $400-billion of longer-term Treasuries and simultaneously selling some of the shorter-dated issues it already held in order to bring down long-term interest rates.
Traders also took in data suggesting Germany will be able to avoid slipping into recession as an index of investor optimism rose more than expected in December.
The ZEW indicator of economic sentiment rose to plus 6.9 points, from minus 15.7 in November. Markets had expected the index to rise only to minus 11.5. Germany's economy grew a modest 0.2 per cent in the third quarter.
Commodities were generally weak as the January crude contract on the New York Mercantile Exchange was unchanged at $85.56 a barrel.
Copper prices gave up some of Monday's 4 cent rise as the March contract dipped a penny to $3.69 a pound.
February gold faded $6.20 to $1,708.20 an ounce.