By Ketki Saxena
Investing.com – The Canadian dollar strengthened against its U.S. today following optimistic economic data from China that boosted risk sentiment and crude prices.
Both the official and the Caixin manufacturing purchasing managers indices rose significantly from January, and were well above the 50 level which indicates growth.
The US Dollar meanwhile slumped against a basket of currencies on optimism on growing optimism around China which bolstered bets for growth in the global economy this year, even as Treasury yields rose and US economic data showed a contraction in factory activity and rising inflation.
For the Canadian economy meanwhile, the S&P Global (NYSE:SPGI) Manufacturing PMI rose to a seasonally adjusted 52.4 in February from 51.0 in January, posting its highest level since July. Measures of output and new orders both rose, while inflation pressures continued to ease, further boosting the case for the Bank of Canada to maintain rates at its policy meeting next week.
Looking ahead for the pair, analysts at HSBC expect the Canadian currency to falter against the greenback as, “The near-term local focus is likely to be on the Bank of Canada’s (BoC) meeting on 8 March. The BoC has already signalled a conditional pause and the market has taken this on board, with just 2 bps priced in for March and 8 bps by April”
“Beyond the BoC, the focus for USD/CAD will move to the employment reports from both the US and Canada on 10 March, and then to the US CPI release on 14 March. But in the end, it is hard to make an idiosyncratic case for near-term CAD strength.”
“Like its central bank, the CAD looks likely to hit the pause button.”
The Canadian dollar also gained some support from crude prices, rebounding on hopes for Chinese demand even as US crude inventories rose.