Canadian Markets: Loonie extends loss as Bank of Canada stands pat

By Myra P. Saefong, MarketWatch

SAN FRANCISCO (MarketWatch) ? The Canadian dollar extended losses against the U.S. currency Wednesday after the Bank of Canada kept its overnight rate target at 1%, as expected.

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?The broad contours of the communiqu? were roughly in line with [the central bank?s] previous statement, contrasting a weak international backdrop with a domestic economy that continues to grow broadly in line with potential,? wrote Mazen Issa, Canada macro strategist at TD Securities, in a note.

The Bank of Canada will likely remain on hold as far as policy goes for the rest of 2012, he said, but with the forward-looking language left unchanged, it will eventually recommence ?tightening when international headwinds abate and domestic growth accelerates above potential.?

The central bank said Wednesday that it expects economic growth to pick up through 2013, and that ?underlying momentum remains at a pace roughly in line with the economy?s production potential.?

Signs of a lost generation in Europe

Euro-zone youth unemployment will remain elevated for at least five years, according to a report from the International Labor Organization. (Photo: Getty Images)

Following the Bank of Canada?s announcement, the country?s currency, also known as the loonie, was trading 0.4% lower versus its U.S. counterpart, with one U.S. dollar /quotes/zigman/4867882/sampled USDCAD -0.0074% ?buying 99.04 Canadian cents, up from 98.64 Canadian cents on Tuesday.

The euro /quotes/zigman/4867915/sampled EURCAD +0.0194% ?bought 1.2482 Canadian dollars, up from C$1.2385 Tuesday.

Overall, ?the key drivers for the loonie right now lie outside of the country,? wrote Michael Woolfolk, managing director at Bank of New York Mellon, in a note, pointing out that the recent ?drop in the USD and rise in crude-oil prices are helping to support the CAD.?

He expects the Bank of Canada to raise rates ahead of the U.S. Federal Reserve, which would lead to a stronger loonie. ?However, that is a story for 2013 rather than 2012,? he added.

Christopher Vecchio, currency analyst at DailyFX, said the loonie has found support from strong housing-sector and labor-market growth throughout the past year, as well as the recent turnaround in U.S. growth prospects, given that the U.S. is Canada?s largest trading partner.

The loonie should strengthen from current levels, he predicted, and ?barring a major tail-risk event that would spur immense U.S. dollar demand, we have the USDCAD finishing 2012? at 97.75 to 98.25 Canadian cents.

Equities edge up

In Toronto equities trading Wednesday, stocks moved higher overall. The S&P/TSX Composite Index /quotes/zigman/20942 CA:GSPTSE +0.41% moved up 0.3% to stand at 11,975.38, with strength seen in the natural-resource sector.

/quotes/zigman/20942 GSPTSE 11,990.14, +48.44, +0.41%

The S&P/TSX Capped Diversified Metals and Mining index /quotes/zigman/24977 XX:TTMN +0.54% ?added 0.8% and the S&P/TSX Capped Materials index /quotes/zigman/24976 XX:TTMT +0.58% ?gained 0.7%.

Inmet Mining Corp. /quotes/zigman/13509 CA:IMN +1.63% ?rose 2.1% and First Quantum Minerals Ltd. /quotes/zigman/11596 CA:FM +0.26% ?saw its stock climb 1.1%.

Technology stocks inched up, with the benchmark index for the sector /quotes/zigman/23269 XX:TTTK -0.13% ?up 0.2% as shares of Research In Motion Ltd. /quotes/zigman/18555 CA:RIM -1.07% ? /quotes/zigman/18534/quotes/nls/rimm RIMM -1.88% ?added 0.6%, following a recent drop to their lowest levels since 2003.

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US : ICAP Currencies

Volume: 0.0000

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US : ICAP Currencies

Volume: 0.0000

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CA : Canada: Toronto

Volume: 149.19M

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XX : Canada: Toronto

Volume: 15.06M

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XX : Canada: Toronto

Volume: 61.27M

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CA : Canada: Toronto

Volume: 118,798

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CA : Canada: Toronto

Volume: 1.20M

Sept. 5, 2012 4:32p

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XX : Canada: Toronto

Volume: 2.28M

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CA : Canada: Toronto

Volume: 1.15M

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US : U.S.: Nasdaq

Volume: 7.85M

Sept. 5, 2012 4:00p

Myra Saefong is a MarketWatch reporter based in San Francisco.

Source: http://feeds.marketwatch.com/~r/marketwatch/software/~3/21DLg2x4LUY/story.asp

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