Canadian dollar rises as economy grows faster than expected at start of 2013

The Canadian dollar was down about two-thirds of a US cent Wednesday as the Bank of Canada said it was keeping its key rate unchanged at one per cent amid expectations of weaker than expected economic growth. (Jonathan Hayward / THE CANADIAN PRESS)

TORONTO -- The Canadian dollar was higher Thursday amid figures from the start of the year that showed the economy grew at a faster than expected clip after faltering at the end of 2012.

The loonie was up 0.11 of a cent at 98.49 cents US after Statistics Canada reported that real gross domestic product in January grew by 0.2 per cent. That was better than the 0.1 per cent gain economists had expected and followed a 0.2 per cent dip in December.

"The big surprise in the report was the 1.2 per cent increase in manufacturing production -- with that sector seeing gains in activity despite softer sales," said CIBC World Markets economist Emanuella Enenajor.

"While today's data suggest Q1 GDP could track somewhere in the neighbourhood of 1 1/2 per cent, an acceleration from the pace seen in prior quarters, that's still softer than the Bank of Canada's outlook."

Other data showed that the U.S. economy grew at a slightly faster but still anemic rate at the end of last year.

The Commerce Department says the American economy grew at an annual rate of 0.4 per cent in the October-December quarter. That was slightly better than the previous estimate of 0.1 per cent growth. The revision reflected stronger business investment and export sales.

Commodity prices were mixed with the May crude contract on the New York Mercantile Exchange ahead 22 cents to US$96.80 a barrel.

May copper shed early gains to move down a penny to US$3.44 a pound while June gold bullion declined $8.90 to US$1,598.30 an ounce.

Traders also looked to Cyprus as banks reopened after a nearly two-week shutdown while the tiny Mediterranean country negotiated a bailout agreement with international creditors. The pact will see many large depositors lose a big chunk of their money.

The mood was generally calm despite some long queues at certain branches. Cyprus has imposed capital controls to prevent a run on the banks, the first time such measures have been taken since the euro was established in 1999.

Cyprus secured the bailout agreement on Monday, but early relief gave way to concern that it might become a model for dealing with other heavily indebted eurozone countries in future.

Meanwhile, uncertainty over the political future of Italy put pressure on the euro. Following inconclusive elections about a month ago, the country is still without a government and that has raised concerns over its future economic path. Italy is the third-largest economy among the 17 countries that use the euro.