The Canadian dollar closed at a fresh seven-month low Wednesday amid sharply lower oil and metal prices.The commodity-sensitive loonie dropped 0.53 of a cent at 98.3 cents (U.S.).
The dollar has lost about 2 cents since the start of the year, centred on fears of massive U.S. government spending cuts, the housing market and oil prices.
There are worries about the looming sequester in the U.S. That is a huge package of across-the-board spending cuts worth $85-billion that are set to take effect at the end of the month unless lawmakers can agree on other cuts that would be more selective.
It would cut a big chunk out of American economic growth, a worrisome prospect for a struggling economy.
The housing sector has also come under scrutiny with the International Monetary Fund saying that it is overvalued by a good 10 per cent.
The price gap between global benchmark Brent crude and Western Canadian Select, which is the crude produced by Western Canada’s oil sands, has also become a concern. Recently, that price gap widened as much as $65 a barrel as pipeline bottlenecks have prevented growing oil sands production from getting to the most lucrative markets. That gap is now down to about $45 amid expectations it will fall even more.
There is also suspense over the future of the Keystone XL pipeline, which would carry bitumen from the Alberta oil sands to U.S. refineries in the Gulf of Mexico.
Meanwhile, Italy is weighing on currency markets. An election this weekend could result in a split parliament, making it difficult for a coalition government to push through unpopular economic reforms.
And the British pound tumbled after minutes of the last rate-setting meeting of the Bank of England showed that governor Mervyn King and two others backed another monetary stimulus. The pound was trading 0.8 per cent lower on the day, falling below $1.53 Wednesday for the first time since June.
Commodity prices were lower with the March crude contract on the New York Mercantile Exchange down $2.28 to $94.38 a barrel.
Oil prices were undercut by analysts’ expectations for higher U.S. crude supplies when the Energy Department’s Energy Information Administration releases its weekly inventory report on Thursday. Analysts on average forecast a rise of two million barrels, according to Platts, the energy information arm of McGraw-Hill Cos.
March copper declined 4 cents to $3.61 a pound.
April gold bullion fell beneath the key level of $1,600 an ounce, closing down $26.20 to a seven-month low of $1,578 an ounce. Other technical factors were at work with analysts talking of a death cross in the market.
This event happens when a security’s long-term moving average breaks above its short-term moving average or support level.
Meanwhile, several Federal Reserve policy makers expressed concerns last month about the risks of the Fed’s efforts to boost the U.S. economy by keeping borrowing costs low through bond purchases.
Minutes of the Fed’s Jan. 29-30 policy meeting showed that some officials were worried that the continued purchases could eventually escalate inflation, unsettle financial markets or cause the Fed to absorb losses once it begins selling its investment holdings.
The Fed said it would review its current open-ended program of asset purchases totalling $85-billion at the March meeting.
On the economic front, U.S. housing starts for January came in lower than expected – at an annual rate of 890,000, down from December’s read of 954,000 and below expectations of 922,000.
Building permits rose 1.8 per cent to an annualized rate of 920,000 in January, up from 909,000 in December.