Canadian dollar lower, G7 warns of consequences of volatile currency moves - InfoNews

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Canadian dollar lower, G7 warns of consequences of volatile currency moves

February 12, 2013 - 5:37 AM

TORONTO - The Canadian dollar was lower Tuesday morning amid mainly higher commodities and a warning from the Group of Seven leading industrial nations that volatile movements in exchange rates can adversely hit the global economy.

The loonie was off 0.11 of a cent to 99.46 cents US.

The statement from the G7 group, which includes Canada, also affirmed their commitment to exchange rates determined by the markets and not government policy.

The statement came out prior to a weekend meeting of Group of 20 Finance ministers where exchange rates and the threat of a "currency war" are expected to feature heavily.

"Today’s anticipated G7 statement draws the line that beyond committing to market determined exchange rates and noting that excessive volatility have adverse implications, the G7 commits that they will not target foreign exchange rates through monetary policy," said Scotia Capital chief currency strategist Camilla Sutton.

"This distinction is important as if monetary policy’s intended outcome is to weaken the currency for economic gain it would be considered part of a currency war; however if monetary policy’s goal is to improve the domestic economic environment and the by product is a weaker currency than it is far more globally acceptable."

Attention has been centred recently on the Japanese yen, which dropped Monday to its lowest against the U.S. dollar since May 2010. The Japanese government has not directly intervened to get the value of the yen down. But it has set in motion a series of economic policies, such as a higher two per cent target for Japanese inflation that many in the markets think will lead to more money being created in Japan.

One parallel effect of that policy has been a rise in the euro, which threatens to make the region’s exports more expensive and hinder the economic recovery.

Despite the G7 statement, the yen remained stable Tuesday as analysts observed that any country could claim that its loose monetary policy was used to help the domestic economy, not set the interest rate. There is little to stop the Japanese central bank, for example, from continuing to pursue its ultra-loose monetary policies.

Markets were unfazed by a nuclear test conducted by North Korea on Tuesday. Pyongyang said it successfully detonated a miniaturized nuclear device at a northeastern test site.

Oil prices advanced, adding to Monday's gain of over $1 largely due to a weaker U.S. dollar. The March contract on the New York Mercantile Exchange gained 66 cents to US$97.69 a barrel.

April bullion on the Nymex edged $1.40 higher to US$1,647.70 an ounce while March copper in New York moved up two cents to US$3.74 a pound.

It is a light day on the economic calendar.

Traders will be looking to Bank of Canada governor Mark Carney, who is appearing before the House of Commons Standing Committee on Finance Tuesday morning.

"Of interest is how much worse he feels about the economy following sharp declines in employment and housing starts in January," said BMO Capital Markets senior economist Sal Guatieri.

"The declines, though likely exaggerated following surprising strength late last year, imply a serious downside risk to the Bank's 2.3 per cent first quarter growth estimate."

News from © The Canadian Press, 2013
The Canadian Press

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