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Loonie nears three-month high as US dollar loses position on political tensions

TORONTO - The Canadian dollar was higher again Tuesday, extending recent gains to heights not seen in nearly three months.

The loonie moved up 0.39 of a cent to 91.56 cents US.

The last time the loonie closed that high was on Jan. 13 when it ended the day at 92.20.

Despite the currency's climb in the past few weeks after trading below 89 cents US in late March, the loonie is still short of its 2014 high of about 94 cents US, according to Bank of Canada data.

Some of the Canadian currency's perceived momentum Tuesday came from a decline in the U.S. dollar against the yen and euro.

On Monday, pro-Russian separatists seized a provincial administration building in the eastern Ukrainian city of Donetsk and proclaimed the region independent — an echo of events prior to Russia's annexation of Crimea. Though Ukrainian authorities say they are driving them out, tensions remain.

In Canada, the latest construction figures couldn't drum up much optimism for the domestic economy.

A report from the Canada Mortgage and Housing Corp. said housing starts dropped to a seasonally adjusted rate of 156,823 units in March, while Statistics Canada reported the value of building permits, a measure of future construction, dropped 11.6 per cent to $6.1 billion in February.

"The outsized drop in homebuilding activity in March indicated that a weather-related effect likely persisted during the first three months of 2014," wrote Laura Cooper, an economist at RBC Economics, in a note.

"As the weather effect eases, we expect housing starts activity to retrace this recent weakness."

Traders have been focused on the state of the global economy and the speed of growth in the coming months.

A report from the International Monetary Fund says threats from super-low inflation and outflows of capital from emerging economies threaten worldwide growth. The organization says it expects the global economy to grow 3.6 per cent this year and 3.9 per cent in 2015, up from three per cent last year.

Those figures are one-tenth of a percentage point below the IMF's previous forecasts in January. However, the fund nudged its 2014 forecast for Canada upward one-tenth of a point to 2.3 per cent this year.

In commodities, oil prices settled at the highest level in a month, with the May crude contract gaining $2.12 to US$102.56 a barrel. June gold bullion rose to a two-week high, up $10.80 to US$1,309.10 an ounce.

The Canadian dollar also appeared to avoid any impact it could have felt from the Quebec provincial election. A solid Liberal victory and resounding defeat for the separatist Parti Quebecois on Monday cleared the possibility of any referendum in the near future.

The Canadian Press

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