The Canadian dollar tumbled more than a full cent Monday amid a massive selloff in gold and data showing that the Chinese economy is growing slower than expected.The commodity-sensitive loonie closed almost at the lows of the session, falling 1.12 cents to 97.52 cents (U.S.) as prices for oil and copper also fell sharply.
The trigger for Monday’s selling pressure for energy and base metals came from data showing that the world’s second-largest economy grew by 7.7 per cent compared with a year earlier in the most recent quarter, down from the previous quarter’s 7.9 per cent. That fell short of many private sector forecasts that growth would accelerate slightly to 8 per cent.
Gold prices deepened a selloff that gained ground last week. The June contract on the New York Mercantile Exchange closed down $140.30 at $1,361.10 an ounce, its lowest close since Feb. 11, 2011, and came on top of a $63 drop on Friday.
Several reasons have been cited for the drop in gold prices.
Last week, Goldman Sachs lowered its average gold price forecast for 2013 to $1,545 an ounce, a level it took out last Friday.
Doubts about the future of the U.S. Federal Reserve’s monetary policy program known as quantitative easing (QE) have also factored in. The program involves printing money to buy $85-billion of bonds every month. It has had a depressive effect on the U.S. dollar in the past and helped boost gold prices, since bullion is seen as an inflation hedge.
But analysts point out that if QE is ended later this year, the need for an inflation hedge is reduced.
There has also been speculation that Cyprus may sell a chunk of its reserves to finance its part of a financial rescue. Though that may not materialize, it was enough to prompt some investors to think that a gold-selling strategy may be used elsewhere in the troubled euro zone.
The Chinese data helped push the May crude contract on the New York Mercantile Exchange down $2.58 to $88.71 a barrel while May copper dropped 8 cents to $3.27 a pound.
China has been the world’s biggest consumer of copper, which is viewed as an economic bellwether as it is used in so many applications.
The poor performance of the dollar came two days before the Bank of Canada makes its next announcement on interest rates. The bank likely won’t be raising rates any time soon, with most economists expecting the bank not to make a move until at least the third quarter of 2014.
Traders will look to the central bank’s accompanying statement to see if it is revising its economic forecast.