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Loonie ends higher amid positive economic reports

Canadian one dollar coins sit in a pile at the Royal Canadian Mint in Winnipeg, Ontario, Canada, on Friday, July 5, 2013.

Brent Lewin/Bloomberg

The Canadian dollar extended its gains on Tuesday as a positive view of the manufacturing sector gave investors some confidence.

The loonie rose 0.19 of a cent to end at 90.65 cents (U.S.) after a report from Royal Bank of Canada suggested that Canadian manufacturers are seeing an improvement in business conditions.

The RBC Canadian Manufacturing Purchasing Managers Index registered 53.3 in March – rising from 52.9 in the previous month. This marks the 12th consecutive month that the PMI has indicated expansion, although a weaker Canadian dollar also increased manufacturers' input costs.

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"The strengthening pace of improvement in business confidence in the past two months is encouraging," RBC assistant chief economist Paul Ferley wrote in a note to investors.

"It mirrors the pattern of a number of other indicators in the U.S. and Canada where weak economic readings in the December, 2013, to January, 2014, period were not sustained."

Ferley says the similarities suggested a "transitory effect" from the bad weather that enveloped much of the winter season in North America this year.

In the U.S., the Institute for Supply Management's manufacturing index rose to 53.7 in March from 53.2 in February, as factories continued to rev up following the severe winter storms earlier this year.

Separately, the Commerce Department said construction spending rose 0.1 per cent in February, after falling 0.2 per cent in January. That number was in line with investors' expectations.

While it's unlikely that the economic data will cause investors to reconsider their cautious growth outlook, it added to comments from the U.S. Federal Reserve on Monday that offered reassurance interest rates would stay low.

Fed Reserve chair Janet Yellen said she thinks the struggling U.S. job market will continue to need the help of low interest rates "for some time."

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Yellen had raised concerns that U.S. interest rates may begin to rise sooner than expected when she suggested last month that the Fed could start raising short-term rates six months after it halted its bond purchases.

Most economists expect the quantitative easing program to end this year.

In commodities, the May crude delivery on the New York Mercantile Exchange settled $1.84 lower at $99.74 a barrel.

May copper was less than a penny higher at $3.03 a pound while June bullion was down $3.80 to $1,280 an ounce.

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