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Canadian dollar sinks as commodities drop on weak global manufacturing data

A Canadian dollar, left, and a Euro are seen next to a series of U.S. dollars in this January 26, 2011 photo in Montreal. THE CANADIAN PRESS/Paul Chiasson

TORONTO - The Canadian dollar fell slightly against the U.S. greenback Thursday amid falling commodity prices and weak manufacturing reports from Europe and China.

The loonie was down 0.15 of a cent to 97.97 cents US in early morning trading.

August gold prices dropped $24.90 to US$1,590.90 an ounce, while copper prices shed four cents to $3.34 a pound.

Oil prices hovered around eight-month lows, losing 91 cents to US$80.54 a barrel after the U.S. Federal Reserve stopped short of implementing vigorous stimulus measures to boost waning economic growth and U.S. crude stockpiles rose unexpectedly.

The Fed on Wednesday extended an interest rate reduction program known as Operation Twist, pledging to sell $267 billion of short-term Treasury bonds and buy longer-term Treasurys through December. However, traders had been hoping for a more aggressive stimulus package known as quantitative easing.

On Thursday, traders appetite for riskier assets such as the commodity-tied loonie was dented by the results of a monthly HSBC survey which showed that manufacturing in China, the world's No. 2 economy, has continued to contract. China's growth has been a pillar of the global economy in recent years, so its slowdown has been of particular concern to investors.

In the 17-country eurozone, the equivalent manufacturing survey, called the purchasing managers' index, fell to 44.8 points in June from 45.1 the previous month. A number below 50 indicates contraction. A related survey on the services sector also showed declining activity, suggesting a drop in GDP in the second quarter.

"Poor PMI data continues to come out of Europe and China’s data was not up to expectations. I get the feeling the market is taking a page out of the British handbook – 'Keep Calm and Carry On' – but I don’t see how that will last," said John Curran, senior vice-president at CanadianForex.

"(The Canadian dollar) will maintain its underperformance on the crosses if economic data releases continue to track towards the weaker side of expectations."

Economic news from Canada out Thursday includes retail sales numbers, which dropped 0.5 per cent in April, much weaker than economists calls for a 0.2 per cent gain.

But most eyes were focused on the Finance Minister Jim Flaherty's announcement that mortgage rules would be tightened for the fourth time in as many years, lowering the amortization rate to 25 years from 30 years and dropping the level people can borrow against their house to 80 per cent from 85 per cent.

In the U.S., the number of people seeking unemployment benefits dipped last week but not by enough to indicate hiring will pick up. Weekly applications for unemployment aid declined by 2,000 to a seasonally adjusted 387,000, the U.S. Labour Department said. That's down from an upwardly revised 389,000.

Europe's finance ministers will meet later Thursday to try to find common ground on whether to soften Greece's austerity terms, possibly clear a bank bailout request from Spain and discuss new ways to boost confidence in the 17-country eurozone.

The ministers' meeting in Luxembourg will try to make progress on wide-ranging solutions to the debt crisis that leaders hope to see adopted by an European Union summit on June 28. The leaders of Germany, France, Italy and Spain will meet in Rome on Friday.

News from © The Canadian Press, 2012
The Canadian Press

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