OTTAWA - The Canadian dollar soared nearly three cents to almost 81 cents US Wednesday morning amid a rebound in world commodity prices, including oil, which jumped over $5 US a barrel to nearly $68 US.
The rebound helped extend this week’s rally in Canadian stock markets, with Bay Street’s resource-heavy benchmark index the TSX showing another triple-digit gain, following further gains as well in Asian and European markets.
Meanwhile, Wall Street’s blue chip Dow, coming off Tuesday’s near 900-point surge, bounced between gains and losses in the wake of a better-than-expected, but still very weak report on durable goods orders last month, and in advance of an expected half-point cut in U.S. interest rates in a mid-afternoon announcement.
U.S. durable goods orders rose by 0.8 per cent, defying projections of a 1.1 per cent drop. However the increase was from a downwardly revised 5.5 per cent drop in August.
“Putting aside the surprising advance in the headline index, the crux of the report is simply that new durable goods orders remained very weak in September, and were much worse than originally reported for August,” noted TD Securities analyst Millan Mulraine. “And in the coming months, we expect the tighter lending conditions and souring U.S. economic climate to cause a further reduction in the amount of capital expenditure undertaken by U.S. businesses, which will further depress durable goods orders.”
The rebound in commodity prices, expectations of lower U.S. interest rates, and continuing concerns about a U.S. recession combined to sap the strength the U.S. greenback, stalling its recent global rally, and sending it sharply lower against a variety of currencies, including the Canadian dollar.
But it’s not just the U.S. central bank that is expected to cut interest rates further.
“With institutional lending to businesses and consumers still impaired, central banks around the world are expected to cut rates further on top of the other actions they have taken to date,”National Bank of Canada economist Paul-Andre Pinsonnault said, projecting that the Bank of Canada’s trendsetting target rate to be cut by a further quarter point to two per cent by year end.
Other analysts have projected the Bank of Canada will go even further and cut its key rate to a modern-day low of just 1.75 per cent to help cushion Canada from what the central bank is projecting will be a U.S.-led mild global recession.
Meanwhile, there was evidence that this year’s slowdown in the domestic economy, especially the slump in the giant auto industry, is adding to unemployment with a report that the number of jobless insurance recipients in August was 487,500, up 12,400 or 2.6 per cent from a year earlier. While the number of beneficiaries increased in most cities, two of the steepest increases were in those heavily dependent on auto industry jobs - Windsor, where the number of recipients was up 19.9 per cent and Oshawa where the number was up 17 per cent.
The level of jobless benefits, meanwhile, rose by 2.7 per cent July to $729.8 million.
The agency also reported that there was virtually no increase in employees in Canada in August. It also noted that their average weekly earnings was up 2.8 per cent, which fell short of the 3.5 per cent increase in the cost of living over that period.
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