Canadian Dollar Rises on Solid U.S. Consumer Data

Synergy Debt Group from Canadian Business

By Malcolm Morrison, The Canadian Press  | November 29, 2011

TORONTO - The Canadian dollar closed higher Tuesday as investors continued to be comfortable adding more risk amid some strong economic data from Canada's biggest trading partner.

The loonie was up 0.48 of a cent to 97.06 cents US as American confidence in the economy in November rose to its highest level since July. The U.S. Conference Board's consumer confidence index rose 15 points to 56.0, up from a revised 40.9 in October.

However, that is well below the reading of 90 which indicates the economy is on solid footing.
Market sentiment has also improved as eurozone finance ministers met to consider extreme steps to deal with the worsening debt crisis, such as having nations cede control over their budgets to a central European authority.

Another plan calls for some kind of elite group of euro nations that would guarantee one another's loans but require strong fiscal discipline from anyone wanting membership.
But analysts wouldn't be surprised to see this optimism fade.

"The crisis in Europe has entered a new and more dangerous phase for which a 'solution' is increasingly expensive and politically unpalatable," observed Scotia Capital chief currency strategist Camilla Sutton.

"Accordingly, we expect that any near-term rally will fade, with the euro moving back towards its recent lows."

The sense of urgency that a fix is badly needed was seen at a bond auction Tuesday morning where Italy's borrowing rates skyrocketed.

Though Italy easily raised €7.49 billion, the yield on its three-year bonds surged to 7.89 per cent, a full 2.96 percentage points higher than last month, while yields on 10-year bonds spiked to 7.56 per cent, up 1.5 percentage points from October. Both rates are unsustainable for very long and are on par with levels that forced other eurozone governments to seek bailouts.

Italy is labouring under debts amounting to €1.9 trillion, or some 120 per cent of its national income. The country, which is the eurozone's third-largest economy, is considered to be too big to be bailed out under current rescue arrangements.

An Italian default would create devastating consequences for the eurozone, and send shockwaves throughout the global economy.

Commodity prices improved following the U.S. consumer data with the January contract on the New York Mercantile Exchange up $1.58 to US$99.79 a barrel.

Bullion was also higher with the February gold contract on the Nymex ahead $4.40 to US$1,718.90 an ounce.

And the March copper contract was up two cents at US$3.39 a pound.

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