RTTNews - Monday during early deals, the Canadian dollar strengthened to an 8-month high against the U.S. currency as crude oil prices rose nearly 2% to hit a fresh 7-month high as stock market optimism and hope of a global economic recovery propelled prices.
The Canadian dollar also edged up to a 7-1/2 -month high against the yen and a 4-1/2 -month high against the euro.
Oil climbed as much as 1.3 percent today after a report showed that China's manufacturing Purchasing Manager's Index stayed above 50 in May, indicating an economic recovery. China, the world's second-biggest energy consumer, increased prices of gasoline and diesel by as much as 8 percent today, a move that may prompt domestic refiners to boost crude purchases for processing.
U.S. light, sweet crude was trading at $67.70 a barrel at 3:12 am ET, off its earlier peak of $67.77. Brent crude rose $1.53 to $67.05 a barrel.
Oil prices rallied 30 percent in May, hitting their highest since early last November and giving OPEC enough hope about the outlook that it agreed to leave oil output levels unchanged at a meeting last week.
Oil prices are now double the four-year low of around $33 struck in December, as rallying equity markets sparked hopes that recent government stimulus measures will increase the speed of a global economic recovery.
U.S. consumer confidence posted its biggest monthly jump in six years, jumping to 54.9 in May from a revised 40.8 in April, the Conference Board said last week, giving hopes of improvement in the U.S. and the global economy.
Reinforcing market views that the worst of the global economic crisis may be over, Japan's exports showed modest signs of recovery in April with shipments to China declining at a slower pace than a year earlier.
U.S. consumer confidence data was the latest in a growing line of reports that have shown an improvement in U.S. economic outlook and weighed on the safe-haven status of the greenback, allowing the Canadian dollar to rally from a four-year low it hit in early March.
Oil jumped last week as the dollar fell beyond $1.41 against the euro for the first time this year, making raw materials such as oil and gold attractive alternative investments.
The Canadian currency appreciated 9% against the greenback, 2.4% against the euro and 5% against the yen in May, as stocks advanced and commodities rallied, led by energy, as the slumping greenback boosted demand for raw materials as a hedge against inflation. Raw materials account for more than half of Canada's export revenue.
The dollars of New Zealand and Australia, which like Canada's tend to trade in tandem with stock and commodity prices, added 13 percent and 10 percent, respectively in May against the greenback as prospects for global growth improved.
During early deals on Monday, the Canadian dollar jumped to 1.0799 against the U.S. currency. This set the highest point for the loonie since October 03, 2008. On the upside, 1.06 is seen as the next target level for the Canadian dollar. The greenback-loonie pair was worth 1.0904 at Friday's close.
The U.S. dollar weakened on speculation General Motors Corp. will file for bankruptcy today, adding to signs the global recession is far from over.
General Motors, the humbled auto giant that has been part of American life for more than 100 years, will file for bankruptcy protection in a deal that will give taxpayers a 60 percent ownership stake and expand the government's reach into big business.
It would be the largest industrial bankruptcy in U.S. history, and the fourth-largest overall. In addition, a GM bankruptcy would be unprecedented, as the federal government would pump billions more into the company.
Extending last year's 20% slide, the Canadian dollar tumbled to a 4-1/2 -year low of 1.3066 against the greenback on March 09, as the U.S. economy, destination of more than three-quarters of Canada's exports, deteriorated and the price of commodities such as crude oil declined amid the weakening global economy. Crude oil accounts for about a tenth of Canada's export revenue.
Canada's currency, called the loonie, depreciated 3% against the U.S. dollar in the first quarter of 2009, which ended on March 31, compared to a 13% loss in the fourth quarter of 2008 ending December 31.
But the Canadian dollar is showing strength since the beginning of second quarter this year as the crude oil prices rebounded and investors stepped out of havens into higher-yielding assets such as stocks amid signs the global economic slump is moderating. Thus far, the loonie has appreciated 14% against the greenback.
The Canadian dollar, which closed last week's trading at 87.39 against the yen rose to a 7-1/2 -month high of 87.75 during early deals on Monday. The next upside target for the loonie-yen pair is seen at the 90 level.
After hitting a new multi-year low of 68.44 against the yen on January 21, the Canadian dollar rebounded and extended its uptrend in the subsequent months. Since then, the loonie-yen pair advanced 22%.
The Canadian dollar rose to a 4-1/2 -month high of 1.5367 against the euro in early deals on Monday. This may be compared to Friday close of 1.5610. If the Canadian dollar climbs further, it may likely target the 1.515 level.
The Canadian dollar has been in an upward channel against the euro after it touched a 2 1/2 -month low of 1.6976 on March 20 as the euro weakened across the board on an interest rate cut by the ECB in April and May and dismal Euro-zone economic reports. Since then, the loonie has strengthened more than 9%.
Looking ahead, the final manufacturing PMI reports from the major European economies for the month of May are expected in the upcoming hours.
The U.S. Bureau of Economic Analysis is due to release its personal income & outlays report for April at 8:30 am ET. Economists estimate that personal income fell 0.2% and the personal spending also declined 0.2% in the month.
The results of the manufacturing survey of the Institute for Supply Management are due out at 10 am ET. Economists expect the index to show a reading of 42 for May.
The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 1.8% decline in spending for April.
From Canada, the first quarter GDP report and the industrial product price index for April are also due.
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