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Canadian dollar declines ahead of Bank of Canada interest rate announcement

TORONTO - The Canadian dollar closed lower Tuesday ahead of the scheduled announcement on interest rates by the Bank of Canada on Wednesday.

The loonie declined 0.48 of a cent to 91.49 cents US as traders also considered a mixed batch of data on manufacturing.

The bank is expected to leave its key rate unchanged at one per cent for some time yet.

Central bank governor Stephen Poloz has maintained a dovish accent on rates and the markets — which generally expect a rate hike in mid-2015 — will look to the bank’s statement for any change in that tone.

The U.S. dollar strengthened and the euro hit its lowest level in a year (US$1.3119) on speculation that the European Central Bank will move this week to inject economic stimulus. The eurozone has been plagued by sluggish inflation that has raised fears the region could slip into deflation. Also, economic growth has been anemic.

There was positive data from Asia overnight as Japan’s government reported that average wages rose 2.6 per cent in July from a year earlier, mostly helped by bonus payments. Increases in household incomes are a crucial part of Japan’s economic revival strategy and the July figures are a rare, positive development on that front.

However, this was balanced by other data showing that China's official purchasing managers index dropped to 51.1 in August, while the private sector measure fell to 50.2, both worse than expected results.

In the U.S., data showed that U.S. manufacturing grew in August at the strongest pace in more than three years. The Institute for Supply Management's index for August showed growing expansion, coming in at 59, up from 57.1 in July.

The news was also positive from Canada as the RBC Canadian manufacturing purchasing managers’ index for August showed the group gained momentum in August with overall business conditions improving at the fastest past since last November. The index registered 54.8 in August, up from 54.3 in July.

On Friday, the U.S. government releases its employment report for August. Economists are looking for another strong month of job creation in the neighbourhood of 220,000.

Canadian jobs data also comes out on Friday and it is expected Statistics Canada will report that about 10,000 jobs were created last month.

Prices were mixed on commodity markets where October crude declined $3.08 to US$92.88 a barrel.

December bullion fell $22.40 to US$1,265 an ounce, while December copper dipped a cent to US$3.15 a pound.

The Canadian Press

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