BUSINESS

Canadian dollar loses ground as economic growth declines in February

04/30/2012 08:57 EDT | Updated 06/30/2012 05:12 EDT
TORONTO - The Canadian dollar fell more than half a US cent Monday as data showed the economy unexpectedly contracted during February.

The currency was down 0.55 of a cent to 101.39 cents US as Statistics Canada reported that gross domestic product declined 0.2 per cent during February. Economists had expected a 0.2 per cent rise during the month.

"The result leaves the economy tracking well below the Bank of Canada’s 2.5 per cent growth rate for the quarter," observed CIBC World Markets chief economist Avery Shenfeld.

"Even with a likely rebound in March, the first quarter growth rate looks likely to be no better than two per cent or less."

Deteriorating conditions in Europe also attracted investor attention Monday as official data confirmed Spain is back in its second recession in three years after shrinking by 0.3 per cent in the first quarter, following a similar decline in the previous three-month period.

The contraction in Spain’s economy is dimming hopes that the government will be able to cut its budget deficit as predicted, which could in turn spell higher borrowing rates as investors lose confidence.

Also, ratings agency Standard & Poor’s on Friday downgraded Spain to just three notches above junk. And on Monday, the agency lowered its rating for 11 Spanish banks.

Investors are worried that Spain will not be able to support its banks, which are burdened with massive amounts of bad loans on an imploded property market.

Lower prices for oil and metals also impacted the commodity-sensitive loonie.

Soft economic conditions in the U.S. also helped push oil prices toward $104 a barrel Monday with the June crude contract on the New York Mercantile Exchange down 69 cents to US$104.24 a barrel.

Demand concerns rose after data on Friday showed that the U.S. economy grew at an annual rate of 2.2 per cent in the January-March quarter, compared with three per cent in the final quarter of 2011.

Metal prices also backed off with the May copper contract on the Nymex down two cents to US$3.80 a pound.

And June bullion declined $14.40 to US$1,650.40 an ounce.