Loonie higher as commodities rise' trade surplus narrows in February

TORONTO – The Canadian dollar closed sharply higher Thursday amid rising commodities prices and data showing a narrowing trade surplus.

The loonie jumped 0.97 of a cent to 100.55 cents US as traders shrugged off some glum economic data from the U.S. and China.

The surge in the Canadian dollar paralleled a rise in equity markets, which were sharply higher for a second day amid a strong start to the corporate earnings season and reassuring words on the economy from the U.S. Federal Reserve.

Aluminum giant Alcoa Inc. reported a surprise profit Tuesday while the Federal Reserve’s latest reading on economic conditions said that each of the Fed’s 12 bank districts grew at a modest to moderate pace from mid-February through April 2. And the Fed’s so-called Beige Book survey noted that hiring was steady or increased in most of the country.

Statistics Canada reported that the trade surplus fell from almost $2 billion in January to $300 million in February.

The month saw a drop in exports of 3.8 per cent, largely due to falling auto shipments, and little change in imports. There was also a significant decline in energy product exports to the United States.

Meanwhile, in the U.S. the trade deficit narrowed to US$46 billion from $52.5 billion in January, a much stronger improvement than had been expected.

Copper prices recovered somewhat from a string of losses. The metal, viewed as an economic barometer because it is used in so many industries, had lost about seven per cent over the last week amid soft trade data from China, the biggest consumer. But on Thursday, copper was ahead eight cents to US$3.72 a pound.

The May crude contract on the New York Mercantile Exchange ran ahead 94 cents to US$103.64 a barrel.

Gold bullion prices gained $20.30 to US$1,680.60 an ounce.

The World Bank trimmed its growth outlook for China this year to 8.2 per cent from 8.4 per cent. It cited U.S. and European economic woes and Chinese lending and investment curbs imposed to cool an overheated economy.

The bank stressed it still expects a gradual slowdown at the world’s second-biggest economy and added that Beijing should be ready to launch a new stimulus if needed.

China has been a major force in helping the global economy recover from the 2008 financial crisis and recession. Its huge appetite for commodities has sent prices for oil and metals higher, along with resource stocks on the TSX.

But the government has been clear about its intentions to rein in an overheated economy for some time.

Other data showed that U.S. jobless benefit applications jumped to their highest level in two months last week.

The European debt crisis was in the background as Italy’s borrowing costs continued to rise amid renewed uncertainty about its debt load and growth prospects. Italy easily sold €4.88 billion in bonds in four denominations on Thursday, but investors demanded higher returns.

For example, the Italian Treasury sold €2.88 billion in three-year bonds at a yield of 3.89 per cent, up from 2.76 per cent last month. However, demand was a healthy 1.37 times the maximum offer of €3 billion.

Italy’s borrowing rates had eased in recent months thanks to government reforms and cuts, as well as emergency European Central Bank loans to banks. But uncertainty has returned to the eurozone’s peripheral countries, particularly Spain.