TORONTO – The Canadian dollar closed higher Tuesday after three losing sessions amid general U.S. dollar weaknesss.
The loonie gained 0.09 of a cent to 83.65 cents US after losing more than a cent over the previous three sessions, advancing despite a continuing drop in commodity prices and a warning by the Bank of Canada that plunging oil prices pose a risk for Canada’s economy.
Central bank deputy governor Timothy Lane noted that lower oil prices produce benefits such as putting more cash in consumers’ pockets and helping to cut costs for other sectors, like manufacturing.
But, Lane predicts the gains will be more than outweighed by the losses because lower incomes in the oil patch and along its supply chain will hurt the rest of Canada’s economy.
The February crude contract in New York closed down 18 cents to US$45.89 a barrel after moving firmly below the $45 level earlier in the morning.
A huge glut of oil has sent prices tumbling almost 60 per cent from recent highs registered in June 2014. Analysts anticipate it will take months to work out the huge supply/demand imbalance, which has been worsened by Saudi Arabia’s refusal to cut production.
Falling oil prices have heavily punished the loonie, which has fallen three per cent this month alone.
“On a year-to-date basis (the Canadian dollar) is one of the worst performing currencies,” noted Camilla Sutton, chief FX strategist, managing director, Scotiabank Global Banking and Markets.
“Fresh lows in oil prices are weighing heavily on the economic outlook for Canada and dragging the currency lower as well. As long as oil continues to fall the risk for the Canadian dollar is lower. “
Elsewhere on the commodity markets, March copper fell eight cents to US$2.65 a pound amid mixed economic news from China. Exports from the world’s second-largest economy rebounded in December but imports shrank in a sign of weak domestic demand. Total trade in 2014 grew just 3.4 per cent, well below the official 10 per cent target.
Chinese demand for imported oil, iron ore, food and other goods has cooled as economic growth slows, falling to a five-year low of 7.3 per cent in the quarter ended in September.
February gold bullion gained $1.60 to US$1,234.40 an ounce.