Loonie pulls back further

The Canadian Press
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Chinese manufacturing data gives little optimism of rising exports

TORONTO—The Canadian dollar pulled back further Thursday amid concerns about weakness in China’s economy and recent comments from the  Bank of Canada.

The dollar closed 0.09 of a cent lower at 90.10 cents US after a decline of nearly a full cent on Wednesday. Earlier in the session, it traded as low as 89.35 cents US, the first time since mid-2009 that the loonie has been below the 90-cent US mark.

Results of HSBC’s preliminary survey of Chinese factory purchasing managers in January fell below the level indicating expansion for the first time since July. The report came days after data showed China’s economy slowed in the final quarter of 2013.

Investors are concerned it could signal a greater shift in the Chinese economy, which would likely affect exports from Canada.

In commodities, the March crude oil contract on the New York Mercantile Exchange gained 59 cents to settle at US$97.32 a barrel, its highest level this year.

February gold bullion rose $23.70 to US$1,262.30 an ounce.

The Canada’s dollar has come under increasing scrutiny since the Bank of Canada’s latest reading on the economy Wednesday.

The central bank said it expects the loonie to remain strong and “continue to pose competitiveness challenges for Canada’s non-commodity exports.”

It stopped short of calling the currency overvalued, as it left its key interest rate unchanged at one per cent.

The central bank also noted inflation has been lower than expected and won’t return to its ideal target of two per cent until 2016.

“The depreciation in the Canadian dollar is expected to exert upward pressure on retail prices in a number of categories over the next few years,” Derek Burleton, vice-president and deputy chief economist at TD Bank, said in a note.

“A weaker Canadian dollar raises the prices we pay for imported goods, and these cost increases filter through to the consumer level to varying degrees.”

Downside of decline

Meanwhile, the Conservatives may see the loonie’s downward trajectory as giving the economy a fortuitous boost, but critics say talking down the currency could also exacerbate underlying problems in Canadian business.

Finance Minister Jim Flaherty has made a point of noting that a weak dollar can spur economic growth by boosting exports — a boon for a government with its sights set squarely on balancing the books.

But former Liberal finance minister Ralph Goodale warns against encouraging the dollar’s descent.

He says a weak currency also raises the cost of importing goods, such as equipment, which can hurt productivity.

He says the Tories aren’t addressing sluggish growth in productivity and declining international competitiveness.

Organizations: HSBC, New York Mercantile Exchange, Bank of Canada TD Bank Conservatives

Geographic location: US, Canada, China

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  • brett
    January 24, 2014 - 07:05

    This is good news for the provincial budget. Be prepared to see an elimination of the deficit this year. Oil prices have not moved but the Canadian dollar is dropping, so our debts are cheaper, exports are worth more... this is a bonus to the upside for the province. It's bad for my upcoming vacation however.