Tuesday, June 2, 2009

Canadian dollar rises against U.S. currency

Canada's currency gave back most of Monday's early gains as traders sold dollars to take advantage of May's recent run-up for the loonie.

In morning trading, the Canuck buck popped above 92 cents US on American economic weakness and some decent Canadian GDP data.

By the end of the day, however, the Canadian dollar stood at 91.66, up .06 of a cent.

Still, Monday's performance meant that the currency rose in value for the third day in a row and added to the loonie's showing in May.

The dollar had already gained almost 10 per cent in the fifth month of 2009 versus the U.S. greenback, the country's best showing since 1950.

Positive Canadian news

Higher oil prices, approaching $69 US a barrel, is one factor underscoring the Canadian currency's stellar showing.

As well, Monday's gross domestic product showed Canada's economy slipped, on an annualized basis, 5.4 per cent for the first quarter of 2009.

But that performance was actually better than what many analysts were forecasting, and placed Canada behind only France in economic showing for the January to March period.

Mixed U.S. news

In addition, General Motors' historic bankruptcy, also on Monday, threw a pall over the U.S. currency as foreigners saw the move as indicative of an ailing private sector.

The lack of a pulse for American industry lessens the interest of foreigners in investing in U.S. equities and debt.

Finally, American consumers spent less in April, to the tune of 0.1 per cent versus March, a sign that personal spending is not providing much support to a potential economic recovery.

On the plus, however, the Institute for Supply Management noted that its most recent reading of manufacturer sentiment reached its highest level since last September.

That had some investors believing that the U.S. economy at least was hitting bottom, a prerequisite for a recovery.

Split view

Analysts, however, are divided on whether Canada's biggest currency winning streak in almost 60 years has more life or is on its last legs — at least for now.

"The current move looks overdue for this stage of the global business cycle," wrote CIBC economists Krishen Rangasamy and Avery Shenfeld in a recent currency note.

The CIBC analysts argued that all the positive news might not be enough to justify the May rise in the currency's value. In addition, oil prices are vulnerable to any addition to crude inventories, they said.

By contrast, technical analysts — people who watch the dollar's trading patterns and volumes — noted the 50-day moving average of the Canadian loonie exceeded the 200-day average for the first time since May 2007.

“This is a technical negative for the U.S. dollar,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second-largest bank, told Bloomberg News.

The last time the shorter-duration average exceeded the longer-term indicator, the Canadian dollar proceeded to gain more than 17 per cent.