TORONTO (Reuters) - The Canadian dollar remained above parity with the U.S. currency on Wednesday, holding its ground as global risk appetite rose on encouraging manufacturing data from world economic powers the United States, China and Germany.
The commodities-linked Canadian currency touched a three-month high at C$0.9964 to the U.S. dollar after a report showed that U.S. manufacturing activity in January grew at its strongest pace in seven months.
The U.S. data helped power a commodities rally that was kickstarted by data showing China’s manufacturing sector was no longer contracting and that euro zone manufacturing was on the upswing, boosted by Germany’s first rise in output in seven months.
“Chinese numbers gave some people a little more comfort that China is going to achieve a soft landing,” said Avery Shenfeld, chief economist at CIBC World Markets. “As a huge commodities consumer that’s an important part of the story for the Canadian dollar.”
The currency finished at C$0.9991 to the U.S. dollar, or US$1.0009, up slightly from Tuesday’s close at C$1.0028 to the U.S., or 99.72 U.S. cents. In January, the Canadian dollar rose about 1.7 percent to register its first monthly gain since October.
But analysts said the 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,” said Dean Popplewell, chief currency strategist at OANDA.
Traders kept their focus on Greece, where they hope debt talks will conclude with a deal that prevents a default that would ripple through the European 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,” added Popplewell.
A Canadian manufacturing report on Wednesday showed 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.
European uncertainty also drove down yields to multi-year lows at an auction of benchmark 10-year Canadian government bonds as investors scrambled to get a piece of Canada’s vaunted triple-A rated economy.
“If you do think there are funding concerns globally then a lot of people have been looking to Canada as a good funding vehicle in the sense that our bonds are good collateral,” said Ian Pollick, fixed income strategist at RBC Capital Markets.
Government bond prices were mostly lower with the two-year bond down three Canadian cents to yield 0.977 percent. The 10-year bond fell 12 Canadian cents to yield 1.905 percent.
Editing by Rob Wilson