U.S. economic data pushes loonie higher

The Canadian dollar (loonie) is pictured in Vancouver, B.C. Thursday, Sept. 22, 2011. THE CANADIAN PRESS/Jonathan Hayward

TORONTO - The Canadian dollar closed higher Tuesday in the wake of a strong reading on the U.S. economy.

The loonie rose 0.22 of a cent to 101.44 cents US after The Institute for Supply Management's index on manufacturing came in better than expected. The ISM report showed continued expansion, with the index coming in at 54.8 against the 53 reading that economists forecast. It also improved on the March reading of 53.4.

Positive economic data from the U.S., Canada's biggest trading partner, often lifts the loonie. That's because a stronger American economy lifts demand for oil and metals along with manufactured goods.

The loonie had slid just shy of three-quarters of a U.S. cent Monday after Statistics Canada reported the economy contracted by 0.2 per cent in February, disappointing traders who expected a 0.2 per cent increase.

The data raised the likelihood that the Bank of Canada will not be in a hurry to reduce the stimulus provided by low interest rates amid worsening economic conditions in Europe. In the latest sign that tough austerity measures are choking off economic growth, Spain announced Monday it was officially back in recession.

Meanwhile, other data showed that China’s manufacturing sector expanded for a fifth straight month in April.

The state-affiliated China Federation of Logistics and Purchasing said Tuesday that its purchasing managers index, or PMI, rose 0.2 percentage points to 53.3 per cent in April, up from March’s 53.1 and February’s 51.0.

The world’s second biggest economy has been an important prop for a slowly recovering global economy. But there has been nervousness as the government tries to engineer a so-called soft landing for its economy as it battles high inflation.

China’s economic growth declined to 8.9 per cent in the final quarter of last year after Beijing hiked interest rates and tightened other controls.

Commodity prices ran ahead in the wake of the positive manufacturing data with the June crude contract on the New York Mercantile Exchange ahead $1.29 to US$106.16 a barrel.

The May copper contract inched a penny higher to US$3.84 a pound. And June bullion dipped $1.80 to US$1,662.40 an ounce.