TORONTO - The Canadian dollar closed higher Wednesday, off early highs as the U.S. dollar gained strength after the U.S. Federal Reserve failed to deliver a strong hint that another round of economic stimulus is on the way.
But a strong run up in oil prices helped push the loonie up 0.26 of a cent to 98.05 cents US.
Minutes from the last Fed meeting on interest rates showed policymakers agreed last month that they might need to take more action to support growth if the U.S. economy loses momentum.
They showed Fed officials signalled their concern that the struggling U.S. economy could worsen if Congress fails to avert tax hikes and across-the-board spending cuts that kick in at the end of the year.
But there was nothing to indicate another round of stimulus is imminent.
"The minutes ... reveal that U.S. Fed officials are edging closer to launching a third round of large-scale asset purchases, but it won't become a reality unless the recovery loses even more momentum or a more severe flare up in the eurozone crisis raises the already elevated downside risks," said Capital Economics chief U.S. economist Paul Ashworth.
Other central banks have moved recently to help keep the recovery on the rails.
The European Central Bank and the People’s Bank of China cut lending rates last week. But slowing trade growth in China and weak jobs creation in the U.S. have investors worried that markets could languish until the Federal Reserve implements another round of Treasury bond purchases known as quantitative easing.
Commodity prices gained ground after weak Chinese trade data sent oil and copper lower on Tuesday.
But prices took off Wednesday after China’s auto industry said sales jumped a solid nine per cent in June despite a slowing economy. China is the world’s biggest market for new vehicles.
Also, the U.S. government said oil supplies fell last week by 4.7 million barrels, triple the decline expected by analysts, which is signalling higher demand.
The August crude contract on the New York Mercantile Exchange gained $1.90 to US$85.81 a barrel.
Copper ran up five cents at US$3.45 a pound while bullion declined $4.10 to US$1,575.70 an ounce.
Markets also digested the latest trade data from Canada and the United States.
Statistics Canada said the trade deficit with the world was $793 million in May, up from $623 million in April. Merchandise imports increased 0.4 per cent on the strength of energy products while exports were relatively unchanged in May.
And south of the border, the U.S. trade deficit moderated during May from the month before. The deficit came in at US$48.7 billion, down from $50.6 billion in April.