The Canadian dollar closed lower Tuesday as the Bank of Canada forecast lower-than-expected economic growth and commodity prices fell back.
The loonie dropped 0.21 of a cent to 96.85 cents (U.S.) after the bank’s senior deputy governor, Tiff Macklem, said the central bank expects third- and fourth-quarter growth to come in at an annualized 2 to 2.5 per cent. It had previously forecast growth in the July-September period of 3.8 and 2.5 per cent in the final quarter.
Mr. Macklem cited a more prudent consumer and an export sector that has yet to fully recover.
The bank also hinted that growth projections for 2014 may also be revised downward.
The loonie declined amid otherwise widespread U.S. dollar weakness as traders focused on a partial shutdown of the U.S. government and looked ahead to another key deadline looming in the middle of the month.
The shutdown occurred after Congress failed to approve a short-term funding agreement before a midnight Monday night deadline.
Analysts say significant damage to the U.S. economy was unlikely unless the shutdown lasted more than a few days.
More worrisome is the prospect of the U.S. government hitting its debt limit Oct. 17, raising worries of default.
Analysts believe that such an event would likely lead to a flight to safety and, ironically, a stronger U.S. dollar.
Falling prices for oil and metals also pressured the Canadian currency.
Oil prices continued to move lower amid worries about the effect of the shutdown on the U.S. economy and weak Chinese manufacturing data that were released on Monday. The November crude contract on the New York Mercantile Exchange lost 29 cents to $102.04 a barrel.
Metal prices were lower, with December copper down 5 cents at $3.27 a pound while December gold plummeted $40.90 to $1,286.10 an ounce.
Traders also took in a solid reading on the American manufacturing sector.
The Institute for Supply Management’s September index showed rising expansion, coming in at 56.2 on top of a 55.7 reading in August. Economists had expected the index to ease slightly to 55.
The government shutdown is being felt in creating an absence of what is usually market-moving data. On Tuesday, traders were supposed to take in the latest reading on construction spending but the data were held up because of the shutdown.
Also, traders had been looking to Friday and the release of the government’s September employment report. That has also been put on hold, with the U.S. Labour Department saying it won’t collect data or issue reports during the shutdown.
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