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Loonie turns lower, U.S. bond yields fall on global economic worries

Canadian dollars are pictured in Vancouver, Sept. 22, 2011.

JONATHAN HAYWARD/THE CANADIAN PRESS

The Canadian dollar was slightly lower late morning Thursday amid a better than expected reading on manufacturing shipments during March.

The loonie dipped 0.04 of a cent to 91.85 cents US as Statistics Canada reported that manufacturing sales edged up 0.4 per cent to $50.9-billion. It was the sixth advance in seven months and was far better than the 0.1 per cent rise that economists had expected.

The agency said that the gain mostly reflected higher sales in the food, machinery, and plastics and rubber products industries. However, these increases were largely offset by declines in the paper, and petroleum and coal products industries.

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But the loonie was well off the highs of the session as economic worries helped push yields on the benchmark U.S. 10-year Treasury to a seven month low of 2.48 per cent amid economic worries and how sub par economic performance could impact rising interest rates.

Data out Thursday showed the economic recovery in the European Union proceeding at a slower than expected pace.

Eurostat, the EU's statistics office, said the economy of the 18 countries that share the euro saw economic output grow by only 0.2 per cent in the first quarter from the previous three-month period. The modest rise came despite a better-than-expected 0.8 per cent advance in Germany and was below economists' expectations for a 0.4 per cent increase.

A large chunk of the blame for the under performance can be placed on a flat performance in France, Europe's second largest economy behind Germany.

The figures are likely to strengthen arguments for the European Central Bank to cut interest rates and take further stimulus measure at its next meeting June 5.

The U.S. economy has also been a cause for concern. Data has showed the economy hardly grew at all during the first quarter and some analysts wonder if it actually contracted.

There have also been concerns about the strength of the Chinese economy and how well it will weather a slowdown in the housing sector.

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"So, putting that all together shifts the focus in terms of growth to potentially things aren`t as strong," said Camilla Sutton, Chief FX Strategist, Managing Director Scotiabank Global Banking and Markets.

"(Also), globally, many central banks including the U.S. Federal Reserve have really been trying to highlight that when rates do move higher, they are likely to move slowly and cautiously and I think the market has really just been interpreting and pricing that in."

Worries about weak conditions have also raised speculation that the Fed could delay hiking short-term rates.

"And we have seen that play out in some of the futures, in terms of the pricing of when the first Fed interest rate hike will come have pared back recently," added Sutton.

Markets have expected that the Fed could move on rates mid-2015.

Meanwhile, in the U.S., other data released Thursday showed that inflation is ticking up from very low levels.

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The U.S. Labor Department said the consumer price index rose 0.3 per cent last month after a 0.2 per cent gain in March. Over the past 12 months, prices have increased two per cent, the largest gain since July and matching the Federal Reserve's inflation target.

The gain was largely due to higher food and gas costs.

On the commodity markets, June crude on the New York Mercantile Exchange fell 86 cents to US$101.51 a barrel.

July copper was a cent lower at US$3.15 a pound and June bullion dropped $10.30 to US$1,295.60 an ounce.

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