December 31, 2012 / 4:28 PM / 6 years ago

Canadian dollar stronger as China helps offset "cliff" worry

TORONTO (Reuters) - The Canadian dollar strengthened slightly on Monday, with healthy Chinese manufacturing data taking some sting out of worries about the United States as politicians there hold last-minute talks to avoid a fiscal crunch of spending cuts and tax hikes.

A man holds the new Canadian 100 dollar bill made of polymer in Toronto November 14, 2011. REUTERS/Mark Blinch

A survey of China’s vast manufacturing sector showed it had grown in December at its fastest pace since May 2011, pointing to a possible rebound after its slowest year of expansion since 1999. China’s appetite for raw materials provides a boost to Canadian resource companies.

But Canada still depends most on the United States for its exports, meaning that the risk of a politically induced recession there weighs heavily on the currency.

“The No. 1 hurdle that investors are trying to get over is the fiscal cliff situation in the U.S.,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

U.S. politicians have yet to reach a deal to avert the “fiscal cliff” and have only a few hours of legislative time scheduled in which to act if an agreement materializes.

“Depending on how we clear that hurdle, successfully or not, that should set the tone for growth currencies and overall risk sentiment,” Manimbo added.

At 9:47 a.m. (1447 GMT) the Canadian dollar was trading at C$0.9953 to the greenback, or $1.0047, compared with C$0.9965, or $1.0035, at Friday’s North American close.

The Canadian dollar is likely to trade between C$0.9886 and C$0.9990, near its 100- and 200-day moving averages, Scotiabank analysts wrote in a note to clients.

The currency is in track to record a 2.1 percent gain against the U.S. currency.

The two-year bond was off 3 Canadian cents to yield 1.140 percent, while the benchmark 10-year bond fell 27 Canadian cents to yield 1.798 percent.

Reporting by Alastair Sharp; Editing by Lisa Von Ahn

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