Canadian dollar firms to three-month high on China, Europe hopes

Wed Feb 1, 2012 10:25am EST
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By Jon Cook

TORONTO (Reuters) - The Canadian dollar firmed above parity against the U.S. currency on Wednesday as commodity prices were boosted by encouraging manufacturing data from China and Germany and as Greece inched closer to a debt deal.

Better-than-expected manufacturing data from two of the world's top economies helped ease concerns about the global outlook and lifted Canada's commodity-linked currency.

China's factory sector expanded slightly in January, confounding expectations for a contraction. In Europe, the Eurozone Manufacturing Purchasing Managers' Index (PMI) also rose to 48.8 last month from 46.9, boosted by Germany's first rise in output in seven months.

"Growth currencies have done extremely well on the back of Chinese data, which is in expansionary territory still even though the European woes are rather prominent," said Dean Popplewell, chief currency strategist at OANDA.

The Canadian dollar reached a session high of C$0.9964 to the U.S. dollar, its strongest level since October 31. It finished January at C$1.0028 to the U.S., or 99.72 U.S. cents, up about 1.7 percent for the month to register its first monthly rise since October.

But Popplewell said the Canadian currency will experience some resistance as it tries to stay above the one-for-one level with the greenback as appetite grows to buy a weaker U.S. dollar.

"At the moment the risk-reward is to sell the Canadian dollar on these rallies," he added.

Traders kept their focus on Greece, where they hope debt talks will conclude with a deal that prevents a chaotic default which would ripple through the banking sector and debt markets.   Continued...