TORONTO – The Canadian dollar was trading at a six-week low at midday Monday.
The loonie was off 1.05 of a cent at 96.30 cents US as commodity prices tumbled along with global markets. It earlier fell to 96.02, the lowest it has been since Oct. 6.
The January oil contract was down $1.31 at US$96.36 a barrel, while the December gold contract plunged $39.50 to US$1,685.60 an ounce and the copper contract shed 11 cents to US$3.29 a pound.
The loonie’s decline comes as a reaction to weakening commodity prices, while rising market uncertainty is bolstering the U.S. dollar, seen as a safe have in times of economic turmoil.
Equity markets also saw big drops as politicians south of the border approach a Nov. 23 deadline for an agreement on how to improve Washington’s finances by $1.2 trillion over the coming decade. The main hurdle in the bipartisan panel’s negotiations has been how much to raise in new taxes.
“The news has spurred a classic flight to safety supporting a stronger Japanese yen and U.S. dollar,” said a report from BMO Economics.
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“As oil (West Texas Intermediate crude) trades almost $6 per barrel from last Thursday’s high, you’d be hard pressed to find a reason to buy the Canadian dollar against the current backdrop,” BMO said.
Even as the U.S. deadline approaches, Europe is the bigger concern that will put pressure on the Canadian dollar, said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.
“I think it will continue to go down until we get some sort of resolution out of Europe – until people feel confident that these countries that need to get money, can get money.”
Spain on Sunday became the third European country in as many weeks – after Greece and Italy – to change its government because of discontent generated by the sovereign debt crisis.
It dumped its ruling Socialists for the conservative leadership of Mariano Rajoy, who inherits an economy racked by debt and nightmarish unemployment, which at more than 21 per cent is the highest among the 17 countries that use the euro.
Kicking off a week of light economic news, Statistics Canada reported Monday that wholesale sales rose 0.3 per cent in September to $48.7 billion. By volume, Statistics Canada reports wholesale trade fell 0.5 per cent. Economists had expected a 0.7 per cent again.
Meanwhile, the number of Americans who bought previously occupied homes rose slightly last month but remained at depressed levels. The National Association of Realtors says home sales rose 1.4 per cent last month to a seasonally adjusted annual rate of 4.97 million.