Loonie declines amid falling commodities, traders look to BoC rate announcement

TORONTO – The Canadian dollar was lower Monday morning as commodity prices fell back despite data showing China’s growth coming in better than some had expected.

The loonie was down 0.29 of a cent to 95.9 cents US as the Bank of Canada’s new governor, Stephen Poloz, gets set to issue his first policy decision since taking over in early June. Traders will take in the latest interest rate decision by the central bank and the BoC’s latest Monetary Policy Report on Wednesday.

Markets don’t expect the bank to move on rates until at least well into next year. But traders will be looking for changes in the bank’s language in its statement for clues as to when it might hike rates from 1.25 per cent.

There was relief that a slowdown in China’s economic growth wasn’t as sharp as previously thought.

The world’s second-largest economy grew 7.5 per cent from a year earlier in the second quarter, slowing from the previous quarter’s 7.7 per cent, as weak trade and a clampdown on lending took their toll.

A clampdown on risky lending at state banks had contributed to worries that China’s growth might fall below seven per cent.

Other data showed that growth in Chinese factory output slowed to 9.3 per cent for the first half of the year, down 0.2 percentage points from the first quarter’s rate.

And retail sales growth decelerated to 12.7 per cent for the first quarter, declining by 1.7 percentage points from a year earlier.

Signs of slowing Chinese growth depressed commodity prices with the September copper contract on the New York Mercantile Exchange down two cents to US$3.14 a pound.

Oil also retreated with the August contract on the Nymex down $1.03 to US$104.92 a barrel.

Oil is up about 10 per cent so far this month, jolted higher by unexpectedly sharp drops in U.S. crude and gasoline inventories, which suggest stronger demand.

August bullion slipped $2.20 to US$1,275.40 an ounce.

The decline in the loonie Monday followed a jump of more than 1 1/2 cents US last week. The U.S. dollar weakened after U.S. Federal Reserve chairman Ben Bernanke reassured markets that the U.S. needs a “highly accommodative monetary policy,” or low interest rates, for the foreseeable future. The Fed is buying $85 billion a month in bonds to keep interest rates low.