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Canadian dollar makes gains after manufacturing figures show improvement

TORONTO - The Canadian dollar extended its gains on Tuesday as a positive view of the manufacturing sector gave investors some confidence.

The loonie rose 0.19 of a cent at 90.65 cents US, after a report from the Royal Bank suggested that Canadian manufacturers are seeing an improvement in business conditions.

The RBC Canadian Manufacturing Purchasing Managers Index registered 53.3 in March — rising from 52.9 in the previous month. This marks the 12th consecutive month that the PMI has indicated expansion, although a weaker Canadian dollar also increased manufacturers' input costs.

"The strengthening pace of improvement in business confidence in the past two months is encouraging," wrote RBC Economists assistant chief economist Paul Ferley in a note to investors.

"It mirrors the pattern of a number of other indicators in the U.S. and Canada where weak economic readings in the December 2013 to January 2014 period were not sustained."

Ferley says the similarities suggested a "transitory effect" from the bad weather that enveloped much of the winter season in North America this year.

In the U.S., the Institute for Supply Management's manufacturing index rose to 53.7 in March, up from 53.2 in February, as factories continued to rev up following the severe winter storms earlier this year.

Separately, the Commerce Department said construction spending rose by 0.1 per cent in February, after falling by 0.2 per cent in January. That number was in line with investors' expectations.

While it's unlikely the economic data will cause investors to reconsider their cautious growth outlook, it added to comments from the U.S. Federal Reserve on Monday that offered reassurance interest rates would stay low.

Fed Reserve chairwoman Janet Yellen said she thinks the struggling U.S. job market will continue to need the help of low interest rates "for some time."

Yellen had raised concerns that U.S. interest rates may begin to rise sooner than expected when she suggested last month that the Fed could start raising short-term rates six months after it halted its bond purchases.

Most economists expect the quantitative easing program to end this year.

In commodities, the May crude delivery on the New York Mercantile Exchange settled $1.84 lower at US$99.74 a barrel.

May copper was less than a penny higher at US$3.03 a pound while June bullion was down $3.80 to US$1,280 an ounce.

The Canadian Press

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