"The currency has held in quite well during August, it’s done quite well against other commodity currencies," said Mark Chandler, head of FIC strategy at RBC Dominion Securities.
"So I think we were due for a little bit of a correction and I think it’s (because) of big events, not just the ECB but payroll reports for both Canada and the U.S."
The loonie was down 0.52 of a cent at 100.92 cents US after the Bank of Canada announced it was leaving its key interest rate unchanged at one per cent amid weakening global economies. However, that move was widely anticipated and the bank left intact language indicating that rates will likely rise at some point in the future.
The central bank said in its statement that there is a widespread slowing of activity across most economies.
Specifically, "the economic expansion in the United States continues at a gradual pace, Europe is in recession and its crisis, while contained, remains acute," said the bank in its accompanying statement.
"In China and other major emerging economies, growth is decelerating somewhat more quickly than expected from previously-rapid rates."
Currency markets had minimal reaction to the victory in the election by the pro-independence Parti Quebecois. The PQ failed to win a majority government, meaning it will have a difficult time advancing its sovereigntist agenda.
"Neither the Liberals nor the CAQ will provide support for any of the PQ’s hardline measures and the surprise would be if the next election is more than 18 months away," observed BMO Capital Markets deputy chief economist Doug Porter.
The Bank of Canada's sober economic assessment came as traders anxiously awaited Thursday's interest rate announcement from the European Central Bank amid hopes the ECB will move to ease the eurozone debt crisis by addressing the high borrowing costs that have bedevilled some of the weakest members of the monetary union, particularly Spain.
It is expected some sort of bond-buying program will be announced but it would come with strings attached.
To be eligible for the central bank’s help, for example, countries would likely have to formally apply for assistance from the eurozone's rescue facility and accept conditions on their budget policies, which many governments would be reluctant to do.
Markets also looked ahead to Friday's release of the August U.S. non-farm payrolls report to see if a weak report would persuade the Federal Reserve to embark on another round of stimulus.
Economist expectations for the U.S. data are modest. The consensus is the economy created about 127,000 jobs last month.
In Canada, economists project that the economy cranked out 11,000 jobs during August.
Commodity prices were mixed with the October crude contract on the New York Mercantile Exchange ahead six cents at US$95.36 a barrel.
December copper on the Nymex was up six cents at US$3.53 a pound, while December bullion slipped $2 to US$1,694 an ounce.Suggest a correction