Loonie rallies on GDP data, global central bank

Wed Nov 30, 2011 4:35pm EST
 
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By Jennifer Kwan

(Reuters) - The Canadian dollar rose to a two-week peak against the U.S. dollar on Wednesday on stronger-than-expected domestic growth data and a move by major central banks to increase liquidity in the global financial system.

The currency touched a session high of C$1.0124 against the U.S. dollar, or 98.78 U.S. cents, its best level since November 14.

Data showed the Canadian economy grew at an annualized rate of 3.5 percent in the third quarter, recovering from a 0.5 percent contraction in the second quarter as Canada felt the economic effects of Japan's earthquake and tsunami.

A Reuters survey of analysts had forecast a rise of 3.0 percent. By contrast, third-quarter real gross domestic product in the United States grew 2.0 percent.

"It was better than expected. A lot better than the Bank of Canada expected so it clearly diminishes the risk of a rate cut," said Sal Guatieri, senior economist at BMO Capital Markets.

"The lower prospect of a rate decline is generally good for the currency because capital continues to flow into our debt market."

The Bank of Canada will not raise interest rates again until the fourth quarter of next year as Europe's worsening debt crisis dims the outlook for the global economy, according to a Reuters survey.

The Canadian dollar ended at C$1.0203 against the U.S. dollar, or 98.01 U.S. cents, sharply higher than Tuesday's North American close of C$1.0303 to the U.S. dollar, or 97.06 U.S. cents.   Continued...