Canadian dollar rises amid weak need U.S. dollar, strong oil prices
TORONTO - The loonie was higher Thursday as the U.S. dollar weakened after the Federal Reserve hinted that it wasn't too worried about inflation.
The Canadian dollar rose 0.23 of a cent to 92.40 cents US.
Markets had been prepared for a more hawkish stance from the U.S. central bank, which delivered its latest policy announcement Wednesday following a two-day meeting. Instead of signalling that interest rates may soon be on the rise amid a quickening in the pace of consumer price increases, Fed chair Janet Yellen dismissed the figures, calling them "noisy."
Earlier this week, the U.S. government reported that the consumer price index rose 0.4 per cent in May and that it has risen 2.1 per cent over the past 12 months â€” roughly at the level of the Fed's previous target rate for inflation. Excluding volatile food and energy, core inflation was up 0.3 per cent in May, the biggest one-month gain since August 2011.
In its latest policy announcement, the U.S. central bank barely increased its target estimate on inflation, which suggests that it doesn't feel rising pressure to raise short-term interest rates. Most economists believe the central bank likely won't move on rates until 2015.
Also, the Fed announced that it'll cut its monthly bond purchases by US$10 billion to US$35 billion in July, citing an improving U.S. job market. This will be the fifth cut in the purchases since December as the Fed slows the support it's providing the American economy. The stimulus has helped keep borrowing rates low and supported equity markets.
Meanwhile, this week has brought more signs of an improving Canadian economy.
Statistics Canada reported Wednesday that wholesale sales rose 1.2 per cent to $51.2 billion in April, following a decline in March. The agency says higher sales were recorded in all subsectors except for food, beverage and tobacco. The largest gain in April was in the building material and supplies subsector, which rose 3.6 per cent to $7.4 billion in a fourth consecutive monthly increase.
The loonie is also finding support amid continued instability in Iraq, which has pushed up oil prices. The July crude contract advanced 46 cents to US$106.43 a barrel.
On Thursday, government troops and Islamic militants battled for control of Iraq's largest oil refinery, which by late Wednesday remained in government hands. All of the facility's output is used domestically so crude production and exports aren't affected, but the violence underscores how the fighting may threaten the energy infrastructure that Iraq is rebuilding to meet global demand.
U.S. President Barack Obama said he was dispatching up to 300 U.S. military advisers to help quell the insurgency in Iraq. Though not specifically mentioning airstrikes, Obama also said he was leaving open the possibility of "targeted and precise military action" in the future.
August gold bullion gained $41.40 to US$1,314.10 an ounce, while July copper rose two cents to US$3.08 a pound.
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