Improving Economy of US Results in Rally of CAD

The Canadian dollar advanced today after the data from the US improved outlook for Canada’s southern neighbor and muted the negative impact of the fears of Europe’s sovereign-debt crisis.

Crude oil rose 2.4 percent to $88.37 per barrel in New York, following the drop by 0.9 percent. Oil is the chief export of Canada.

According to the US Bureau of Labor Statistics, the Producer Price Index advanced 0.8 percent in September (seasonally adjusted). That’s an improvement compared to August, when the index remained unchanged, and better than the market expectations of a 0.2 percent increase. The net foreign purchases of long-term securities, taking into an account the transactions in both foreign and US securities, climbed $57.9 billion in August from $9.1 billion in July. Canada’s economy and the performance of the nation’s currency depend on the economy of the United States as most of Canadian exports goes to the nation’s neighbor and the biggest trading partner.

The credit problems in Europe have an adverse effect on the world economy and that can hurt the loonie, as Canada’s currency is usually nicknamed. There is other scenario, though, the one in which Europe remains troubled by it problems, while the recovers in the US continue, supporting the economy of Canada. In such a case the uncertainty about the future of the Eurozone may be beneficial to the loonie as traders would run to the currency seeking refuge.

USD/CAD dropped from 1.0233 to 1.0148 today as of 23:14 GMT. EUR/CAD slipped from 1.4058 to 1.3940, while CAD/JPY advanced from 75.02 to 75.52.

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