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Loonie ends higher in reaction to negative U.S. GDP data

Canadian dollars.

Jeff McIntosh/THE CANADIAN PRESS

The Canadian dollar closed higher Wednesday as traders took in data showing that the U.S. economy unexpectedly shrank in the fourth quarter and the Federal Reserve ended its two-day meeting on interest rates.The loonie closed up 0.09 of a cent to 99.85 cents (U.S.).

The U.S. Commerce Department reported earlier that the economy shrank by 0.1 per cent at an annual rate, hurt by the biggest cut in defence spending in 40 years, fewer exports and sluggish growth in company stockpiles.

The result was much weaker than analyst estimates of a 1.1 per cent growth rate in the October-December period.

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The Federal Reserve said at the end of its two-day meeting that it is keeping its rates near zero. The central bank said it will continue with its program of quantitative easing to stimulate the economy as long as the jobless rate stays above 6.5 per cent.

There has been a growing expectation that it may be tempted to reverse its position after minutes from the last meeting in December showed a split among members over how long to continue the stimulus. Some thought the program should be slowed or stopped before the end of 2013.

Traders also looked to the release of employment data two days before the U.S. government comes out with its non-farm payrolls report for January.

Payroll firm ADP reported that the private sector created 192,000 jobs during January. Economists expect the government report to show that the economy created a total of 153,000 jobs, about the same amount as December.

Traders also looked ahead to the latest reading on Canadian economic growth later in the week. On Thursday, Statistics Canada is expected to report that gross domestic product grew by 0.2 per cent during November, up from 0.1 per cent in October.

Oil prices lost some early momentum after the economic data was released as the March crude contract on the New York Mercantile Exchange edged up 37 cents to $97.94 (U.S.) a barrel.

March copper on the Nymex gained 6 cents to $3.75 a pound while April bullion advanced $18.90 to $1,681.60 an ounce.

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