Loonie gets some relief from stronger economic forecast

TORONTO – The Canadian dollar inched higher Wednesday, receiving some support from a positive forecast for the global economy.

The loonie closed up 0.03 of a cent to 91.37 cents US. The World Bank said that the global economy is slowly picking up steam, a prospect that could lift demand for commodities and other Canadian exports.

The bank’s twice-yearly Global Economics Prospects report said global growth is expected to accelerate from 2.4 per cent in 2013 to 3.2 per cent this year and 3.4 per cent in 2015. It said the momentum that countries such as the United States and Japan are building up should support stronger growth in the other countries.

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The new year is only two weeks old and the loonie has already fallen about three per cent to levels last seen in September 2009, making it the worst performing money among the world’s main currencies.

READ MORE: Falling dollars — Global’s complete coverage of the loonie’s slide 

The reasons for the decline are many. One is that the greenback has gained in value as the U.S. Federal Reserve starts to back away from its massive monthly bond purchases.

But recent Canadian economic data has disappointed markets, particularly reports last week showing a rising trade deficit and December employment data showing the loss of 46,000 jobs.

INFOGRAPHIC: Key takeaways from December’s lacklustre jobs report  

The Bank of Canada’s dovish stand on interest rates has also contributed to the fall and traders are particularly looking to what the central bank has to say next week in its next scheduled announcement on interest rates. Governor Stephen Poloz has signalled the bank is in no rush to raise rates and analysts aren’t looking for a hike until next year.

In fact, some are looking for the bank to cut rates. Mark Chandler, head of Canadian FIC Strategy at RBC Dominion Securities observes that “there is a significant minority of observers believing that a shift towards an easing bias is in the cards next week and, unless the notion is dispelled, it is hard to imagine the Canadian dollar reversing some of its recent losses.”