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Loonie closes higher amid weather-impacted housing data, interest rate forecasts

TORONTO - The Canadian dollar closed higher Tuesday as traders speculated about the pace of U.S. interest rate hikes and digested data showing how severe winter weather has impacted the American housing sector.

The loonie was up 0.28 of a cent at 89.61 cents US.

Charles Plosser, president of the Philadelphia Federal Reserve Bank, told CNBC he sees the federal funds rate at three per cent at the end of 2015 and four per cent at the end of 2016.

The current target range for the federal funds rate is between zero and a quarter point.

Federal Reserve chairwoman Janet Yellen caught markets unawares last week when she said that the Fed could start upping rates from near zero six months after the end of its bond buying program.

Plosser said the reaction of the markets surprised him, adding that Yellen's timetable "wasn't a wildly unexpected timeframe".

Cold weather continued to limit buying last month as U.S. new home sales dropped by 3.3 per cent in February.

The S&P/Case-Shiller 20-city composite also indicated that U.S. home prices ticked down 0.1 per cent in January in a third month of declines, with 12 of 20 tracked cities posting drops. On a seasonally adjusted basis, home prices in January rose 0.8 per cent.

Elsewhere on the economic front, business confidence in Germany has slipped back from a 2 1/2-year high as tensions over Ukraine cloud companies’ outlook for the next six months. The Ifo institute said its monthly confidence index dropped to 110.7 points this month from 111.3 in February. That was slightly worse than the 110.9 economists had predicted.

German Chancellor Angela Merkel has stressed that she wants a diplomatic solution to the crisis over Russia’s actions in Ukraine but has made clear she won’t shy away from economic sanctions if the situation there escalates.

Commodities were higher as May crude on the New York Mercantile Exchange erased early gains to decline 41 cents to US$99.19 a barrel.

April gold bullion inched up 20 cents to US$1,311.40 an ounce while May copper was up six cents to US$3.01 a pound.

The Canadian Press


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