BUSINESS
02/16/2012 09:04 EST | Updated 04/17/2012 05:12 EDT

Loonie slightly lower, U.S. economic data helps balance fears of Greek default

TORONTO - The Canadian dollar closed higher Thursday as positive data from the United States helped balance trader uncertainty over the prospects for Greece getting a crucial bailout in time to head off a default.

The currency gained 0.26 of a cent to 100.35 cents US. It had earlier gone as low as 99.65 cents US as traders opted out of riskier investments such as commodity-based currencies and bought into the perceived safe haven of U.S. Treasuries.

But the mood on markets improved amid a positive sign that the American job market is improving. The U.S. Labour Department reported that the number of people seeking unemployment benefits dropped 13,000 to a seasonally adjusted 348,000 last week, the lowest point in almost four years.

Investors were also encouraged by a closely followed index of manufacturing activity in the Philadelphia area. The Philadelphia Federal Reserve's manufacturing index reached a four-month high of 10.2 in February in further evidence of the continued strength in the manufacturing sector.

Positive economic news from Canada's biggest trading partner often has a positive effect on the loonie. For one thing, it improves demand prospects for resources such as coal, oil, copper and gold.

The March crude contract on the New York Mercantile Exchange gained 51 cents to US$102.31 a barrel.

The March copper contract declined one cent to US$3.79 a pound and April bullion edged up 30 cents to US$1,728.40 an ounce.

Meanwhile, investors are gradually reassessing their assumption that Greece will get a bailout worth €130 billion and an accompanying €100-billion debt writedown by private bondholders.

"The market appears to be losing faith and this is a significant concern," said Scotia Capital chief currency strategist Camilla Sutton.

"A Greek default might prove a positive (for the euro currency) in the medium term, but in the near term it would likely weigh heavily on (the euro) as the market struggled with uncertainty."

Greece needs the money to deal with a huge bond repayment March 20 in order to avoid default, which would likely cause shockwaves through the financial system.

Greece has been forced to meet a growing of list demands to qualify for the bailout money. These included finding a further €325 million in savings and a commitment in writing by the leaders of Greece's coalition government that they will stick to those requirements even after an election scheduled for April.

Also improving sentiment during the afternoon was a German newspaper report that the European Central Bank would swap its Greek bonds for newly issued ones. Die Welt said the new bonds are "likely further out in maturity, to give Greece some breathing room."

Meanwhile, Moody's Investors Service said it may lower the ratings of some of the world's largest banks, including Royal Bank of Canada (TSX:RY) as well as those of some securities firms because their long-term prospects for profitability and growth are shrinking.

Other banks under review for downgrades include Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley.

The announcement comes just days after the ratings agency said that it was cutting the ratings of Italy, Portugal and Spain partly because of Europe's weakening economy.