TORONTO – The Canadian dollar closed little changed Thursday as economic growth figures for May came in better than expected.
The loonie was off 0.02 of a cent to 91.71 cents US as Statistics Canada said gross domestic product grew by 0.4 per cent during the month, better than the 0.3 per cent gain that economists had expected.
“While it’s just one month, the solid output gain in May is an encouraging sign that the Canadian economy is riding the coattails of a firming U.S. economy,” said BMO Capital Markets chief economist Doug Porter.
“Especially encouraging is the broad-based nature of the advance, particularly the decent gains in manufacturing and transportation.”
The Canadian report came out a day after other data showed that U.S. gross domestic product grew by an annual pace of four per cent in the second quarter, after contracting 2.1 per cent in the January-March period because of severe winter weather.
The U.S. currency strengthened against other currencies Thursday amid interest rate concerns.
The U.S. Federal Reserve wrapped up its interest rate meeting Wednesday and indicated that it will keep short-term interest rates low “for a considerable time” after it ends its bond purchases, likely in October. Markets have generally expected the Fed to start hiking rates mid-2015, but much stronger than expected economic growth in the second quarter has investors concerned that the Fed could act sooner to raise rates.
Prices for oil and metals also weighed on the commodity-sensitive Canadian currency as the September oil contract moved $2.10 lower to US$98.17 a barrel.
The September copper contract edged a penny lower to US$3.23 a pound while the December gold contract faded $14.10 to US$1,282.80 an ounce.
Markets also awaited developments in the latest Argentine debt saga after the country moved into a debt default for the second time in 13 years.
A midnight Wednesday deadline to reach a deal with holdout bondholders came and went with Argentine Economy Minister Axel Kicillof holding firm to his government’s position that it could not accept a deal with U.S. hedge fund creditors it dismisses as “vultures.” Ratings agency Standard & Poor’s downgraded Argentina’s foreign currency credit rating to “selective default” because of missed interest payments.