Canadian dollar at July, 2012 levels, weak data points to weakening economy

TORONTO – The Canadian dollar was lower for a sixth session Monday amid concerns about weakening economic conditions.

The loonie fell 0.18 of a cent to 97.78 cents US, its lowest level since early July 2012.

February has not been kind to the loonie, which is down about 2.5 US cents for the month on a combination of factors.

These include sliding commodities, worries about the strength of the Canadian housing sector and the price differential between benchmark Brent crude and Western Canadian Select from the oilsands.

Traders are also concerned about U.S. economic strength, particularly as a March 1 deadline looms when more than US$85 billion in across the board spending cuts will be triggered.

Also, the U.S. dollar gained strength last week amid concerns the U.S. Federal Reserve may abandon its easy monetary policy sooner than many analysts have been predicting.

Finally, the loonie was hit at the end of last week as lower than expected retail sales for December pointed to a weakening economy while tame inflation figures indicated the Bank of Canada won’t be raising rates any time soon.

Economists think it could be some time before the loonie resumes its perch above parity with the greenback.

“In light of the recent weakness, persistently soft data and lacklustre economic outlook we’ve downgrade our call on the dollar, with the currency now expected to strengthen at a more subdued pace over the next year ending 2013 at parity,” said BMO Capital Markets senior economist Benjamin Reitzes.

This week, the major piece of economic data comes out Friday. Statistics Canada is expected to report that Canadian gross domestic product grew by 0.7 per cent in the fourth quarter. But it looks like growth started to flatten at the end of the year as the economy likely contracted by 0.1 per cent in December after rising 0.3 per cent in November.

Traders also looked to the eurozone on the final day of a general election in Italy that has proven to be closer than many thought.

Italy has the second-highest level of debt among the 17 eurozone countries as a proportion of its annual gross domestic product. Only Greece’s is higher.

And analysts say the concern is that difficulties hammering together another coalition government could seriously hamper progress on financial reforms.

Commodity prices were higher with the April crude contract on the New York Mercantile Exchange ahead 88 cents to US$94.01 a barrel.

March copper gained two cents to US$3.55 a pound while April gold bullion jumped $16.10 to US$1,588.90 an ounce.