Loonie advances amid strong Chinese data, Italian political turmoil

TORONTO – The Canadian dollar was higher Monday as strong Chinese data helped push commodity prices higher.

However, risk appetite was held in check after Italian Prime Minister Mario Monti announced that he intends to resign by the end of the year, saying he found it impossible to lead after former prime minister Silvio Berlusconi’s party, parliament’s largest, dropped its support.

Monti is widely credited with restoring confidence in Italy amid a government debt crisis.

The loonie rose 0.41 of a cent to 101.31 cents US.

The Chinese government reported Sunday that factory output increased 10.1 per cent from a year earlier, compared to the previous month’s rise of 9.6 per cent year on year. Retail sales rose 14.9 per cent, up from October’s 14.5 per cent.

And electricity consumption rose 7.9 per cent in November from 6.4 per cent in October.

Oil prices advanced amid data showing November crude oil shipments to China, the world’s second-biggest oil importer, are just below their all-time high. China imported an average of approximately 5.69 million barrels a day last month, just below February’s record high 5.98 million barrels a day.

The January crude contract on the New York Mercantile Exchange gained 72 cents to US$86.65.

Copper prices also advanced sharply with the March contract ahead by five cents to US$3.71 a pound. China is the world’s biggest consumer of the metal, which is viewed as a global economic barometer.

On the negative side, Chinese export growth plunged to 2.9 per cent over a year in November amid weak global demand because of Europe’s debt problems and a slow U.S. recovery. Imports were flat, down from October’s 2.4 per cent growth.

Gold prices also picked up with the February contract up $12.60 to US$1,718.10 an ounce.

Also adding to investor unease was an announcement from Berlusconi that he was going to run for prime minister in elections likely to take place in February, a month earlier than expected.

Berlusconi resigned as prime minister last year amid sex scandals and legal woes, unable to convince international markets that he could balance Italy’s budget and pass necessary financial reforms to save Italy from a Greek-style debt crisis.

“This election is likely to be quite ugly, leaving in its wake heightened financial market volatility,” observed Mark Chandler, head of Canadian FIC Strategy at RBC Dominion Securities.

“To wit, this morning Italian yields are under extreme pressure.”

The interest rate on the Italian government’s 10-year bond, an indicator of how risky investors consider a country’s ability to pay down its debt, rose 0.33 percentage points to 4.8 per cent.