February 1, 2012 / 3:28 PM / 5 years ago

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

3 Min Read

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.

"If we don't hear anything with regards to Greece, we'll see individuals and traders start squaring up or reducing some of their risk exposure," said Popplewell.

In North America, the U.S. January ISM manufacturing report came in at 54.1 in January, just below the Reuters consensus forecast for 54.5 but above December's 53.1.

Another report showed Canadian manufacturing growth slowed sharply in January, with output and new order gains well down from December, in the latest sign that Europe's economic crisis is slowing the Canadian economy.

Canadian government bond prices were mostly lower with the two-year bond down three Canadian cents to yield 0.975 percent. The 10-year bond fell 15 Canadian cents to yield 1.908 percent.

Editing by Jeffrey Hodgson

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