Loonie down ahead of rate announcement; traders have muted reaction to PQ win

TORONTO – The Canadian dollar was lower Wednesday morning as traders took the results of the Quebec election in stride and looked ahead to the Bank of Canada’s latest interest rate announcement.

The loonie was down 0.24 of a cent at 101.2 cents US amid lower crude oil prices.

The pro-independence Parti Quebecois won Tuesday’s contest but failed to win a majority government, meaning the PQ will have a difficult time advancing its sovereigntist agenda.

“Neither the Liberals nor the CAQ will provide support for any of the PQ’s hardline measures and the surprise would be if the next election is more than 18 months away,” observed BMO Capital Markets deputy chief economist Doug Porter.

Meanwhile, the Bank of Canada was widely expected to leave its key rate unchanged at one per cent, reflecting slowing economic conditions in most of the world.

But traders will look for any change in wording in the bank’s statement to provide clues as to when the bank might start raising rates.

Commodity prices were weak with the October crude contract on the New York Mercantile Exchange down 30 cents at US$95 a barrel.

December copper on the Nymex was off a penny at US$3.46 a pound, while December bullion shed $3.40 to US$1,692.60 an ounce.

The dollar’s negative showing Wednesday also reflected growing nervousness about the global growth outlook and what central banks can do about it.

This was underscored after FedEx delivered a profit warning, saying after the market close Tuesday that profit for the first quarter ended Aug. 29 will come up short of management’s prior projection of $1.45 to $1.60 a share. The package-delivery company cited “weakness in the global economy (that) constrained revenue growth at FedEx Express more than expected.”

Traders anxiously awaited Thursday’s interest rate announcement from the European Central Bank amid hopes the ECB will move to ease the eurozone debt crisis by addressing the high borrowing costs that have bedevilled some of the weakest members of the monetary union, particularly Spain.

Markets also looked ahead to Friday’s release of the August U.S. non-farm payrolls report to see if a weak report would persuade the Federal Reserve to embark on another round of stimulus.