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Loonie down: traders await rate announcement, look to mixed manufacturing data

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TORONTO - The Canadian dollar closed lower Monday as traders digested a mixed bag of manufacturing reports and awaited the Bank of Canada's next interest rate announcement.

The loonie dropped 0.47 of a cent to 91.76 cents US as the RBC manufacturing purchasing manager’s index showed slowing expansion. It slid to 52.2 in May, down from 52.9 the previous month and 53.3 in March. It was the lowest reading since January.

The data was released two days before the Bank of Canada's announcement. The key rate is expected to stay unchanged at one per cent, where it's been since September 2010.

Economists will look to see if the central bank continues to flag concerns about low inflation being the No.1 concern since inflation has been heading higher recently.

Canada's annual inflation rate climbed to its highest level in two years, reaching two per cent in April, largely driven by an unusually big jump in energy prices.

Meanwhile, the China Federation of Logistics and Purchasing said that its monthly manufacturing index rose to 50.8 points in May, up from April’s reading of 50.4 and was the highest level this year. Any reading above 50 indicates expansion.

And in the U.S., the Institute for Supply Management twice corrected its May manufacturing index to show that factories grew at a strong pace last month. The original report said that manufacturers had expanded at a weaker pace.

The ISM’s manufacturing index for May now reads 55.4, up from 53.2 in the initial report. That was slightly less than the 55.8 reading that economists had forecast but the American report raised hopes for a strong economic rebound in the second quarter.

Hopes have been particularly high for a rebound after data released last week showed that the U.S. economy contracted by a larger than expected one per cent in the January-March period, due in large part to severe winter weather.

Meanwhile, copper prices got a lift from the strong Chinese manufacturing data.

The July copper contract was up five cents to US$3.17 a pound.

Elsewhere on the commodity markets, July crude in New York fell 24 cents to US$102.47 a barrel.

July bullion headed $2 lower to US$1,244 after losing 3.5 per cent last week with markets feeling more comfortable about the Ukraine crisis and more concerned about deflation rather than inflation, particularly in Europe.

It is widely expected that European Central Bank president Mario Draghi will announce measures on Thursday aimed at raising inflation from very low levels and encouraging a lacklustre economic recovery.

Traders also looked ahead to other key domestic data coming out this week.

Canadian job figures for May come out Friday and economists expect about 21,000 jobs were created after the economy shed 29,000 the previous month.

In the U.S., economists also forecast another month of strong job gains. They expect the U.S. government's non-farm payrolls report coming out Friday will show that the American economy cranked out about 219,000 jobs following a much stronger expected 288,000 gain in April.

Note to readers: This is a corrected story. An earlier version incorrectly stated the ISM index figure.

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