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Canadian dollar hits six-week high

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar strengthened to its highest level in nearly six weeks against its U.S. counterpart on Monday, as investors focused on underlying factors supportive of the currency and awaited a Federal Reserve policy decision later this week.

The loonie was trading 0.6% higher at 1.2400 to the greenback, or 80.65 U.S. cents, having touched its strongest intraday level since March 18 at 1.2383.

“What we are getting at this point is a realignment in terms of the Canadian dollar,” said Eric Theoret, global macro strategist at Manulife Investment Management. “The current levels that we are at right now are still much weaker than where you would expect them to be based on fundamentals.”

Higher commodity prices and a more hawkish Bank of Canada are among the factors supportive of the loonie, Theoret said.

The central bank last week signaled it could start hiking interest rates next year and cut the pace of bond purchases.

In contrast, most analysts expect Fed Chair Jerome Powell to say on Wednesday that talk of withdrawing monetary support for the U.S. economy is premature, which could put downward pressure on Treasury yields and the U.S. dollar.

Speculators have raised their bullish bets on the Canadian dollar to the highest in seven weeks, data from the U.S. Commodity Futures Trading Commission showed on Friday.

The price of oil, one of Canada‘s major exports, settled 0.4% lower at $61.91 a barrel, pressured by fears that surging COVID-19 cases in India will dent fuel demand in the world’s third-biggest oil importer.

Canadian government bond yields rose across a steeper curve. The 10-year was up 1.5 basis points at 1.532%.

Canadian retail sales data for February is due on Wednesday, while GDP data for the same month is due on Friday.

 

(Reporting by Fergal Smith; Editing by Ken Ferris and Paul Simao)

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Economy

Canadian dollar rises by most in 11 months

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar rose on Thursday to its highest level against its U.S. counterpart in more than three and a half years as the greenback fell broadly and prices of some of the commodities Canada produces surged.

Aluminum approached levels not reached since 2018, bolstered by positive economic data and rising tensions between China and Australia, while copper jumped 1.9% and gold was up more than 1.5%.

“Commodities matter a fair deal to the Canadian economy,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “When commodity prices strengthen, so too does the Canadian dollar.”

The loonie was trading 1% higher at 1.2145 to the greenback, or 82.34 U.S. cents, its biggest gain since June last year and its strongest level since September 2017.

The currency has been on a tear since the Bank of Canada last month signaled it could begin hiking interest rates in late 2022 and cut the pace of its bond purchases.

“You could be witnessing some market capitulation,” Goshko said. “In the face of an employment report tomorrow that’s supposed to be very negative, it’s quite extraordinary to see it (the loonie) doing so well.”

Analysts expect Canada‘s employment report on Friday to show the economy shed 175,000 jobs in April as restrictions were tightened in some provinces to contain the coronavirus pandemic.

Still, the Canadian dollar is expected to give back some of its recent gains over the coming year as the BoC’s more hawkish stance is offset by a potential dialing back of the U.S. Federal Reserve’s asset purchase program, a Reuters poll showed.

The U.S. dollar on Thursday hit a three-day low against a basket of major currencies.

Canada‘s 10-year yield was little changed at 1.516%, near the middle of its range over the past two months.

 

(Reporting by Fergal Smith; Editing by Mark Heinrich and Dan Grebler)

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Bank of England sees faster economic rebound

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By David Milliken and Andy Bruce

LONDON (Reuters) -The Bank of England said Britain’s economy would grow by the most since World War Two this year and slowed the pace of its trillion dollar bond-purchasing programme, but stressed it was not reversing its stimulus.

Governor Andrew Bailey welcomed the prospect of a stronger recovery than previously forecast as the country races ahead with its coronavirus vaccinations, with much lower unemployment.

But he also said there was still a big gap compared with how big the economy would have been without the pandemic.

“Let’s not get carried away,” Bailey said about the improved outlook. “It takes us back by the end of this year to the level of output that we had essentially at the end of 2019 pre-COVID.”

The BoE raised its forecast for British economic growth in 2021 to 7.25% from February’s estimate of 5.0%.

That would be the fastest annual growth since 1941 when Britain was rearming. But it comes after output plunged by 9.8% in 2020, the biggest drop in more than 300 years.

As well as the vaccines, the growth upgrade reflected a smaller-than-feared hit from a third coronavirus lockdown which began in January and the extension of higher public spending and tax cuts announced by finance minister Rishi Sunak in March.

The economy was set to return to its pre-pandemic size in the last quarter of 2021, three months earlier than previously thought, the BoE said.

But it lowered its projection for growth in 2022 to 5.75% from its previous estimate of 7.25%.

With the economy on course for recovery, the BoE said it would reduce the amount of bonds it buys each week to 3.4 billion pounds ($4.7 billion), down from 4.4 billion pounds now.

“This operational decision should not be interpreted as a change in the stance of monetary policy,” it said.

So far most central banks in rich countries have stressed they are in no hurry to scale back their huge economic support.

But the Bank of Canada said last month it could start to raise rates by late 2022 and pared back its bond-buying.

“While the Bank of England is clearly more positive about the UK economy in the near-term, the Monetary Policy Committee also has significant uncertainties about the longer-term outlook and are seemingly in no hurry to tighten monetary policy,” Howard Archer, an economist with forecasters EY Item Club, said.

The central bank kept its benchmark interest rate at an all-time low of 0.1% and the total size of its bond-buying programme unchanged at 895 billion pounds, as expected by economists polled by Reuters.

BoE Chief Economist Andy Haldane, who has warned of inflation risks, cast a lone vote to cut the bond-buying scheme by 50 billion pounds. Haldane is due to leave the bank in June.

Sterling was little changed against the U.S. dollar and the euro at 1400 GMT.

SMALLER UNEMPLOYMENT HIT

The BoE said it now expected unemployment to rise only slightly to a peak of 5.4% in the third quarter of 2021, when Sunak’s jobs protection programme is due to expire.

Due to this, and an expected short-term boost to investment from government tax incentives, the central bank lowered its estimate of long-term economic scarring to 1.25% from 1.75%.

The BoE said inflation was likely to slightly overshoot its 2% target later this year due to temporary factors mostly related to energy prices.

But it is keeping a closer eye on whether there could be longer-term supply bottlenecks following the pandemic and Brexit.

The BoE saw inflation fractionally below its 2% target in two and three years’ time, based on expectations in financial markets for Bank Rate of 0.3% in two years’ time and 0.6% by the second quarter of 2024.

Bailey said the BoE was not sending a signal about the likely path of interest rates.

($1 = 0.7206 pounds)

(Reporting by UK bureau; Editing by William Schomberg, Toby Chopra and Hugh Lawson)

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U.S. Dollar falls as risk appetite improves

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By John McCrank

New York (Reuters) -The dollar dropped to its lowest point in three days on Thursday as global market risk appetite improved, while sterling zig-zagged after the Bank of England slowed the pace of its bond-buying, but left interest rates unchanged.

Fewer Americans filed new claims for unemployment benefits last week, data showed, as COVID-19 vaccination efforts and massive amounts of government stimulus led to a further reopening of the economy.

While the U.S. economy has been gaining steam, Federal Reserve speakers on Wednesday downplayed the risks of higher inflation.

Those statements reinforced “the lower-for-longer mentality with regards to interest rates,” making the greenback less appealing, said Neil Jones, head of FX sales at Mizuho.

The safehaven U.S. dollar was last down 0.31% at 91.977 against a basket of peer currencies.

“What we’ve seen early in New York is a little bit of back-and-forth gyrations, just because of the Bank of England meeting,” said Erik Bregar, director and head of FX strategy at the Exchange Bank of Canada.

The Bank of England said it would slow the pace of its bond-buying as it sharply increased its forecast for Britain’s economic growth this year after its coronavirus slump, but it stressed it was not tightening monetary policy.

“They kept their QE target in place but they said they are going to reduce the weekly pace of purchases, but that’s not a signal and so sterling has kind of gone up and down and done nothing at the end of the day,” Bregar said.

The pound was last down 0.08% against the weaker dollar at $1.3900.

The euro was up 0.47% versus the dollar at $1.2061, and up 0.65% against the pound, at 86.88 pence per euro.

Investors were also paying attention to elections in Scotland that could herald a political showdown over a new independence referendum.

The Australian dollar fell sharply overnight when China said it would stop its economic dialogue with Australia, but the currency had recovered to trade close to flat on the day as European markets opened.

The Aussie was up 0.1% versus the U.S. dollar at 0.77515 at 1028 GMT, having hit as low of 0.7701 overnight.

The New Zealand dollar also dropped and was down 0.1% on the day.

“The announcements of the formal suspension of the economic dialogue between China and Australia should not have a lasting impact on markets given the already strained relationship between the two ahead of the event,” wrote ING strategists in a note to clients.

The Canadian dollar hit a three-and-a-half year high, helped by oil price gains and the Bank of Canada‘s recent shift to more hawkish guidance.

In cryptocurrencies, ether traded around $3,500 after reaching a record high of $3,559.97 on Tuesday, skyrocketing nearly 800% this month.

Bitcoin declined 0.2% to $57,392.75.

The meme-based virtual currency Dogecoin soared on Wednesday to an all-time high, extending its 2021 rally to become the fourth-biggest digital coin.

(Reporting by John McCrank in New York; additional reporting by Elizabeth Howcroft in London; editing by John Stonestreet and Alistair Bell)

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