Canadian dollar declines amid tepid manufacturing data, rising U.S. bond yields

TORONTO – The Canadian dollar lost ground in the first day of 2014 trading amid rising U.S. bond yields and manufacturing data that indicated the sector is growing at a slower pace.

The loonie closed down 0.33 of a cent at 93.69 cents US as the greenback strengthened against most currencies. The yield on the benchmark U.S. 10-year Treasury hit a 2 1/2 year high of 3.04 per cent earlier Thursday, before edging down to 2.99 per cent.

U.S. yields have been steadily rising since May when outgoing Federal Reserve chairman Ben Bernanke first mentioned the possibility of the central bank cutting back its US$85 billion of monthly bond purchases.

The Fed announced last month it would start trimming its US$85 billion of purchases by $10 billion a month starting in January, with further tapering dependent on economic data.

In the U.S., the Institute for Supply Management’s latest reading on the American manufacturing sector showed slowing expansion, with its index coming in at 57, down slightly from 57.3 in November. That reading met expectations.

Royal Bank’s (TSX:RY) Canadian Manufacturing Purchasing Managers’ Index made a similar finding north of the border, coming in at 53.5 for December, down from 55.3 in November.

And two manufacturing surveys released Thursday showed Chinese activity slowed in December. The China Federation of Logistics & Purchasing said its purchasing managers index declined to 51 from November’s 51.4 on a 100-point scale. Numbers above 50 indicate expansion. A separate survey by HSBC Corp. declined slightly to 50.5 from 50.8 in November.

Meanwhile, the eurozone manufacturing purchasing managers index in December was confirmed at 52.7 as expected.

Commodity prices were generally lower in the wake of the manufacturing data, with the February crude contract on the New York Mercantile Exchange down $2.98 to US$95.44 a barrel.

A strengthening greenback also depressed prices. That’s because a stronger U.S. dollar makes commodities such as oil that are priced in dollars more expensive to buyers using other currencies.

March copper was down a penny at US$3.38 a pound while February gold bullion was ahead $22.90 to US$1,225.20 an ounce.