Dollar up, traders assess Quebec election fallout, look to rate announcement

TORONTO – The Canadian dollar was up slightly Tuesday morning, supported by higher commodity prices.

The currency was 0.06 of a cent higher at 101.51 cents US.

But the loonie could be in for some volatility this week as Quebecers head to the polls and the Bank of Canada makes its next interest rate announcement Wednesday morning. Also, the employment report for August is being released on Friday.

Polls suggest the pro-independence Parti Quebecois will return to office after nine years in opposition but it’s far from certain whether the PQ can form a majority government.

“The Quebec election poses a risk to (the Canadian dollar) given the potential for adverse reactions from investors, where higher yields on Quebec’s provincial debt could result from fears of a referendum in the event of a majority win for the Parti Quebecois,” said Scotia Capital currency strategist Eric Theoret.

The central bank is widely expected to announce it is keeping its key rate unchanged at one per cent amid generally slowing economic conditions globally. But traders will look for hints as to when the bank might hike rates.

And Statistics Canada was expected to announce Friday that the economy cranked out 11,000 jobs last month.

Commodity prices advances with the October crude contract on the New York Mercantile Exchange ahead 34 cents to US$96.81 a barrel.

Metal prices also advances with the December copper contract on the Nymex up three cents to US$3.48 a pound.

Gold bullion was up $9 to US$1,696.60 an ounce.

Traders wondered what steps central banks could take to support the economic recovery and looked ahead to Thursday and an announcement from European Central Bank president Mario Draghi. He is expected to announce details of a new bond-buying program intended to bring down the borrowing costs of countries such as Spain and Italy.

The plan is a crucial step to easing the crisis, which is increasingly hurting the continent’s economy.

Moody’s ratings agency on Monday warned that it could downgrade the credit rating for the European Union as a whole, citing the mounting financial strain of the crisis on key countries like Germany and France.

Investors also looked to employment data for clues as to whether the U.S. Federal Reserve thinks the economic downturn needs another jolt of stimulus. Economists expect the American economy created 127,000 jobs during August on top of 163,000 in July. The Fed holds its next meeting Sept. 13.

There was some negative economic news over the long Labour Day weekend.

China’s HSBC manufacturing Purchasing Managers Index fell to 47.6 in August from 49.3 in July, which was the lowest reading since March 2009.

However, there are signs that China’s central bank is resisting calls for more aggressive measures to boost the economy based on past experience — the huge stimulus enacted in response to the 2008 global crisis fuelled inflation and a wasteful spending boom.

Meanwhile, the final read on the Eurozone manufacturing PMI came in at 45.1 in August.