Loonie rises amid lower commodities as ECB surprises with stimulus

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TORONTO – The Canadian dollar finished higher Thursday amid mostly weak commodity prices and news that the European Central Bank will start a new stimulus program to help strengthen the economic recovery in the eurozone.

The loonie rose 0.12 of a cent to 91.96 cents US.

There was little support from the commodity markets, with the October crude contract down $1.09 to US$94.45 a barrel.

December gold bullion dropped $3.80 to US$1,266.50 an ounce, while December copper rose two cents to US$3.15 a pound.

“Commodities are down and the currency is up, that normally doesn’t happen,” said Sadiq Adatia, chief investment officer at Sun Life Global Investments. “Usually if commodities are up, then that would move the dollar higher too.”

Adatia said the loonie is likely finding strength elsewhere, and is trading within its current expected range of between 91 and 92 cents US.

“That’s the range that Canadian dollar is in right now. If you get at it from the longer term, the pressure should be on the Canadian dollar to drop rather than go up,” he said.

This is partly because the greenback is expected to strengthen as the U.S. economy continues to show signs of outpeforming the Canadian economy, which faces of number of hurdles that can slow the recovery north of the border, including a hot housing market, high consumer debt levels and unemployment.

The ECB said it will cut its benchmark interest rate to 0.05 per cent from a previous record low of 0.15 per cent, while bank president Mario Draghi said the bank would also start purchases of asset-backed securities and covered bonds in October.

Asset-backed securities are based on investments such as loans to companies and for mortgages. Buying them would stimulate the market for such bonds and for banks to make the loans that make up the assets.

“Look for the Canadian dollar to benefit from the ECB rate cut news,” Rahim Madhavji of Knightsbridge Foreign Exchange said in a note.

The move comes a day after the Bank of Canada said it was leaving its key rate unchanged at one per cent, where it has been for four years. It also hinted that it won’t be considering a hike until next year at the earliest.

The central bank confirmed that it thought a previous rise in inflation was due to temporary factors, even though it warned that household debt remains high, while the housing market continues to stay stronger than expected.

Meanwhile, Statistics Canada reported Thursday that the country’s merchandise exports grew by 1.4 per cent in July, while imports edged down 0.3 per cent. That raised Canada’s trade surplus with the world to $2.6 billion from $1.8 billion in June. Economists had expected a surplus of about $1.2 billion, according to Thomson Reuters.

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