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Loonie ends lower on weaker commodity prices

Canadian dollars.

Jeff McIntosh/The Canadian Press

The loonie closed lower lower Friday as Statistics Canada reported that the annual inflation rate slowed in August.

The Canadian dollar lost 0.35 of a cent to end at 97.10 cents (U.S.).

The agency said Canada's annual inflation rate slowed to 1.1 per cent in August, compared with 1.3 per cent in July. The Bank of Canada's core inflation index, which excludes some highly variable items, was 1.3 per cent in August compared with 1.4 per cent in July.

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The results were in line with the expectations of economists and at the lower end of the central bank's target range.

The main contributor to inflation for the month was rising shelter and transportation costs. Canadians paid more for rent and natural gas, offset by lower mortgage interest costs. Meanwhile, the price of gasoline was also higher as was the cost of vehicles.

On Wednesday, the Canadian dollar enjoyed a bump after the U.S. Federal Reserve said it planned to continue unabated its unprecedented $85-billion a month in monetary stimulus.

But those gains were mostly given back due to softer oil and natural gas prices. It's expected that lower commodity prices in the long term will continue to pressure the loonie.

December bullion lost $31.50 to $1,337.90 an ounce, while December copper took back 2 cents to $3.32 a pound. The October crude contract fell 99 cents to $105.40 a barrel.

Allan Small, a senior investment adviser with DWM Securities, said he predicts the currency will continue to decline.

"If commodities are good, our dollar gains strength but with our economy not doing as well, the dollar kind of falls off," Mr. Small said.

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"In my opinion, that's a good thing because over all, a weak dollar is good for the economy. We'll be able to export a lot more to the U.S. and elsewhere; a weak dollar is good for an economy that is trying to grow."

The Fed purchases have been part of an effort to stimulate the U.S. economy by keeping long-term loan rates low. The move has made borrowing easier and helped boost stock markets around the world.

Since May, Fed chairman Ben Bernanke has warned that the stimulus will eventually run out on signs that the U.S. economy is improving.

The markets had been expecting the central bank to announced that it would begin tapering the purchases, but instead, Mr. Bernanke said he wasn't convinced the economy was strong enough to support such a move.

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