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U.S. Dollar up on manufacturing data after initial softness

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U.S. dollar up on Tuesday against a basket of peer currencies after U.S. manufacturing data showed a stronger-than-expected pickup in activity, even as labor shortages and a lack of raw materials weighed on production.

The Institute for Supply Management (ISM) said its index of U.S. manufacturing activity rose in May as pent-up demand amid a reopening economy boosted orders.

The dollar initially traded lower on the report, in which ISM said manufacturing’s growth potential continued to be hampered by worker absenteeism and temporary shutdowns because of shortages of parts and labor.

The report suggests that supply issues in the manufacturing sector are having an impact on the economy as a whole, said Kathy Lien, managing director at BK Asset Management.

“It’s also telling us that the momentum that we saw in the beginning of the second quarter could be beginning to slow.”

The dollar index crept up 0.35% to 89.822, but was well off Friday’s high of 90.447, when a measure of U.S. inflation closely watched by the Federal Reserve posted its biggest annual rise since 1992.

The market bias is generally toward a softer dollar, said Vassili Serebriakov, FX and macro strategist at UBS.

“The global recovery outside of the U.S. that was lagging in the first quarter because of the slow pace of vaccinations has now picked up, particularly in places like the euro zone and the UK,” he said of recent dollar weakness.

Hawkish signals from the central banks of some G10 countries, including Canada, Norway and New Zealand, have also added pressure to the greenback, he said.

Britain’s pound touched a three-year high of $1.425 during the Asian session, helped by remarks from a Bank of England policymaker last week pointing to a rate hike next year or sooner.

The euro ticked up 0.05% to $1.2305, following data that showed euro zone inflation surged past the European Central Bank’s target in May.

“The next quarter’s worth of inflation data is completely riddled with base effects and other temporary factors, so it’s very hard for markets and policymakers to strip out the signal from that noise,” said Simon Harvey, FX analyst at Monex Europe.

Commodity-linked currencies were generally stronger versus the dollar as oil prices rose on expectations for growing fuel demand.

The Organization of the Petroleum Exporting Countries and allies – known collectively as OPEC+ – agreed on Tuesday to stick to the existing pace of gradually easing oil supply curbs, as producers balanced anticipation of a recovery in demand against a possible increase in Iranian supply.

The Canadian dollar reached a six-year high of 1.2010 per greenback, helped by the strength in oil, and data that showed Canada‘s economic growth in the first quarter remained robust.

The Australian dollar was up 0.45% at 0.77625.

Australia’s central bank left its cash rate at record lows and reiterated its lower-for-longer policy stance, even as data showed the country’s output was above its pre-pandemic level.

China’s yuan was steady after authorities ordered banks to increase their foreign exchange reserve ratio, a move seen as an attempt to limit the fast appreciation of the yuan.

The offshore yuan was at 6.3817, up 0.11% on the day.

 

Graphic: Inflation at ECB target – https://fingfx.thomsonreuters.com/gfx/mkt/oakvebqagpr/CPI0101.PNG

 

In cryptocurrencies, bitcoin was down 2.66% at $36,348.78, while ether fell 1.21% to $2,566.90.

 

(Reporting by John McCrank in New York; additional reporting by Elizabeth Howcroft in London; Editing by Bernadette Baum and Mark Heinrich)

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Canadian retail sales slide in April, May as COVID-19 shutdown bites

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Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Economy

Canadian dollar notches a 6-day high

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Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Economy

Toronto Stock Exchange higher at open as energy stocks gain

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Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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