C$ weakens after China service sector data

January 13, 2014 Reuters 0 Comments

January 6, 2014

By Leah Schnurr

TORONTO, Jan 6 (Reuters) – The Canadian dollar weakened against the greenback on Monday after data showed service
industry growth in China slowed sharply last month.

Service sector activity picked up across most of Europe, but China did not fare as well, with the index falling to a two-year low. With China a major consumer of commodities, the Canadian dollar can be sensitive to economic developments in the world’s
second-largest economy.

As well, domestic data showed Canadian producer prices edged up in November, as expected, though raw materials prices dropped, mainly due to crude energy products.

“As a leading indicator of consumer inflation, the continued softness in raw materials prices doesn’t bode well for CPI and consumer prices, which obviously the Bank of Canada has a pretty keen eye on right now,” said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.

The Canadian dollar was at C$1.0675 to the greenback, or 93.68 U.S. cents, weaker than Friday’s close of C$1.0639, or 93.99 U.S. cents.

Trading activity was expected to be back to normal on Monday with investors returning from Christmas and New Year’s holidays.

Many analysts are expecting further weakness in 2014 in the loonie currency as the Bank of Canada is seen maintaining a more neutral policy stance and the Federal Reserve gradually unwinds its economic stimulus program.

“We’ve had a bit of a consolidation over the last few sessions here, but as of right now we’re having a lot of trouble sustaining any movement through C$1.06 to the downside,” said Smith.

“It shows again that the longer-term trend is still intact and that’s a rising U.S. dollar-Canadian dollar.”

Canadian government bond prices were mostly higher across the maturity curve, though the two-year was down half a Canadian cent to yield 1.139 percent. The benchmark 10-year was up 8 Canadian cents to yield 2.745 percent.