Loonie rises, greenback weakens as strong data raises rate hike expectations

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TORONTO – The Canadian dollar closed higher Thursday as the greenback weakened somewhat after minutes from the latest Federal Reserve meeting supported expectations that the central bank could move to hike rates earlier than expected next year.

The loonie gained 0.22 of a cent to 91.37 cents US.

The American currency lost momentum during the morning amid positive American economic data.

The preliminary Markit manufacturing purchasing managers index for the manufacturing sector jumped to a reading of 58 in August from 55.8 in July, its highest level since April 2010.

Other data showed U.S. new home sales rose for a fourth straight month to the highest level in nearly a year.

The news from Japan was also positive. There was a firm increase in Japan’s manufacturing PMI to 52.4 from 50.5 in the prior month, ahead of expectations and the best level since March.

Elsewhere, the news was glum as the preliminary version of HSBC’s manufacturing index for China fell to a three-month low of 50.3 from 51.7 in July, indicating that manufacturing businesses are barely growing.

Also, the purchasing managers index for the eurozone published by Markit Economics fell to 52.8 from 53.8 in July. The report followed other data earlier this month that showed the 18-country eurozone grew at only a slow pace in August, a sign it remains sluggish after a disappointing second quarter in which it did not expand at all.

Meanwhile, the Fed minutes indicated that the U.S. central bank is in no rush to hike rates. However, the minutes also showed greater dissension among Fed members on how fast the labour market is improving, a key element in determining when the Fed will raise rates from near zero where they’ve been since the financial crisis.

Slack in the labour market has been a particular concern, a topic that Fed chairwoman Janet Yellen is expected to address in her speech to the central bank’s economic symposium on Friday.

On the commodity markets, the December gold contract in New York fell $19.80 to US$1,275.40 an ounce as concerns the Fed could move sooner than expected to hike interest rates and a lessening of tensions in the Ukraine/Russia crisis continued to pummel bullion prices.

October crude in New York climbed 51 cents to US$93.96 while September copper was unchanged at US$3.18 a pound.

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