Forex News: The Loonie moves closer to parity

Tuesday, April 6, 2010

US service industries expanded in March at the fastest pace since May 2006 indicating that the recovery in the US economy has spread beyond the manufacturing sector and is creating jobs. The Institute for Supply Management's index of non-manufacturing businesses, which comprise almost 90% of the economy, rose to 55.4, a bigger jump than expected and up from 53.0 the previous month. The pace of orders to service industries rose to the highest level since 2005, while backlogs were the highest since August 2007, indicating companies were having trouble meeting demand.

On Friday the US Labor Department said that employers increased payrolls by 162,000 workers last month, the third gain in five months and the largest since March 2007, indicating that companies are increasingly confident regarding economic recovery. Sustained employment gains would boost incomes leading to increased consumer spending which accounts for about 70% of the economy. James O Sullivan, chief economist at MF Global Ltd said "the recovery is looking increasingly self sustaining".

Also yesterday a report by the National Association of Realtors showed that pending home sales in February jumped the most since 2001. The index of purchase agreements, or pending home sales, rose to 8.2%, the second biggest gain on record and the largest since October 2001. Buyers may be taking advantage of a tax credit that requires contracts to be signed by the end of April, indicating that the market might soon see a rebound in sales.

“Some of this may be an increase in activity ahead of the prospect of the expiration of the homebuyer tax credit,” said Michael Feroli, chief US economist at JPMorgan Chase & Co. in New York. Even so, “if what we’re seeing in the labor market is actually showing decent growth, then I would expect housing would follow.”

Pending sales are considered a leading indicator because they track contract signings. The Realtors’ existing-home sales report tallies closings, which typically occur a month or two later. The pending sales data goes back as far as January 2001.

North of the border in Canada the Loonie again moved closer to parity last week on the back of rising crude oil prices. Oil prices have been rising amid growing optimism that improved US job creation will boost economic recovery and lead to higher demand for crude oil. World oil prices have been on an upward trend partly because of signs of improvement in the US economy, but also because of a weak US Dollar which tends to increase prices of commodities priced in that currency.

Yesterday the Canadian Dollar rose by 0.60% against its American counterpart closing at CAD 1.0019 in the forex online market.

Tomorrow will bring the release of Canadian building permits. Permits made a huge jump four month ago before returning to normal. After a fall of 4.9%, permits are expected to rise by 2.1% this time and may give a boost to the currency. Also out tomorrow is the Ivey PMI. This index has shown that the Canadian economy has expanded in the last two months. This time it is expected to show a rise from 51.9 points to 55.1 points.

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