Loonie hovers above $1.05 US as U.S economic data weaker-than-expected Dominion Lending Centres Clearlease

Loonie hovers above $1.05 US as U.S economic data weaker-than-expected Dominion Lending Centres Clearlease

VANCOUVER, BRITISH COLUMBIA – (April 28, 2011) Clearlease Reports The Canadian dollar was down slightly at midday after rising earlier in the day against its U.S. counterpart, as data showed the U.S. economy grew at a slower pace than expected.

The loonie lost 0.13 of a cent to 105.09 cents US even with commodity prices climbing as the depressed greenback made it cheaper to purchase. It had earlier been trading about 0.20 of a cent higher.

Commodities were higher, with the price of oil ahead $1.13 at US$113.89 a barrel on the New York Mercantile Exchange. Gold rose $19.40 to US$1,536.50 per ounce and copper was up three cents at US$4.26 a pound.

The U.S. government said the economy grew at a 1.8 per cent annual rate in the January-March quarter. That’s the weakest showing since last spring when the European debt crisis reduced growth to a 1.7 per cent pace, and a slower pace than many economists had been expecting.

The weak reading came a day after Federal Reserve chairman Ben Bernanke said at a historic press conference Wednesday that the Fed was not planning to change anything regarding its monetary stimulus and policy because the economy was not yet strong enough.

The Fed left its emergency low 0.25 per cent key lending rate unchanged, while it signalled that its $600 billion Treasury bond-buying program will end in June as planned because the economy has strengthened and companies are starting to hire more.

The Fed has been making bond purchases intended to lower loan rates, encouraging spending and boost stock prices. But critics worried that the purchases would feed inflation.

Bernanke said that rising commodity prices will likely have only a temporary effect on broader inflation in the U.S. Central banks raise interest rates to contain inflation, and policy-makers overseas are already doing so. That makes the dollar less appealing to investors than currencies from countries where rates are already higher and expected to rise further.

The euro is trading above $1.48 for the first time since December 2009. The dollar is sliding versus the British pound and Japanese yen. Currencies of countries that are big commodity exporters, such as the Australian dollar and Canadian dollar, are climbing.

Some uncertainty over the outcome of Canada’s federal election on Monday could be dragging on the loonie — as traders ponder the economic effect of the creeping, but unlikely possibility of a NDP-led government, suggested Camilla Sutton, a currency strategist at Scotiabank.

“We expect to see new lows in (the U.S. dollar versus the Canadian dollar) as loose monetary policy in the US, soon to be tighter policy in Canada, strong Canadian fundamentals, a relatively better Canadian fiscal position, investor sentiment and strong commodity prices all weigh on the U.S. dollar,” she said.

But Bob Tebbutt, vice-president at Peregrine Financial Group Canada Inc. said the market doesn’t seem to be expecting a minority government.

“If the market expected a minority, the Canadian Dollar would be having a hard time moving higher no matter what was happening in the US.”

Currency analysts believe the loonie may accelerate against the greenback following the election.

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