The Canadian dollar closed higher Tuesday against the U.S. currency even as the Bank of Canada said it was leaving its key rate at 1 per cent.The loonie rose 0.17 of a cent to $1.0068 (U.S.) as the bank left the rate unchanged for an 18th consecutive meeting, reflecting weak global economic conditions.
There was no change in the bank's accompanying statement about future intentions. It continued to say that "over time, some modest withdrawal of monetary policy stimulus will likely be required," which is taken to mean the bank will have to raise rates at some point in the future. But many economists don't expect the bank to move on upping rates for some time.
"Markets are pricing in no change in Canadian interest rates over the next 12-months, a view we agree with," said Scotia Capital chief currency strategist Camilla Sutton.
She thinks the loonie will be impacted more in the medium term by the U.S. Federal Reserve and whether it announces further stimulus measures next week, which would involve the purchase of Treasuries along with existing acquisitions of mortgage-backed securities.
The U.S. dollar was lower against many other currencies for a second day as traders felt inclined to add on risk amid an upbeat Chinese manufacturing report and optimism over Greece after the country launched a bond buyback program worth €10-billion ($13.1-billion) that is aimed at trimming its debt load to a more sustainable level.
Oil prices were lower after the U.S. Institute for Supply Management said Monday its manufacturing index unexpectedly went into contraction territory during November, a signal that uncertainty surrounding the fiscal cliff issue is hurting the economy.
Market attention has focused almost exclusively on heading off the automatic big spending cuts and significant tax increases that are to be imposed at the beginning of 2013. The worry is that the combination would dramatically slow the U.S. economy and likely push it back into recession.
The January crude contract on the New York Mercantile Exchange was down 59 cents to $88.50 a barrel.
March copper prices gave up early gains to close unchanged at $3.66 a pound while bullion for February sank beneath the psychologically important $1,700 mark, moving down $25.30 to $1,695.80 an ounce.
Meanwhile, talks between the 27 European Union finance ministers got under way in Brussels aimed at firming plans for a banking union.
They hope to agree on the set-up of a new supervisory body, which will be headed by the European Central Bank and will hold wide-ranging authority over banks.
But Germany and France, the continent's two largest economic powers, disagree on how many banks the ECB should be allowed to oversee, when it should start, and what its final powers should be.