BUSINESS

Loonie closes at 2-month low amid falling commodities,ahead of rate announcement

10/19/2012 08:44 EDT | Updated 12/19/2012 05:12 EST
TORONTO - The Canadian dollar closed at its lowest level since mid-August on Friday amid sharp drops in commodity prices, while traders looked to next week's Bank of Canada decision on interest rates.

The loonie was down 0.85 of a cent to 100.68 cents US as data showed that the central bank doesn't need to raise rates in response to higher inflation. The inflation rate for September came in at an annualized rate of 1.2 per cent, which was in line with expectations.

The bank is widely expected to leave its key interest rate at one per cent Tuesday. But traders will be interested in what the bank will have to say about when it might start upping rates.

"Speculation has risen that the statement will omit the reference that 'some modest withdrawal of the present considerable monetary policy stimulus may become appropriate', which would shift the bank from hawkish to neutral and weigh on the dollar," said Scotia Capital chief currency strategist Camilla Sutton.

The dollar slid 1.43 cents this past week.

Metal prices particularly weighed on the commodity-sensitive currency Friday as December copper lost nine cents to US$3.66 a pound while December bullion backed off $19.40 to US$1,725.30 an ounce.

The November contract on the New York Mercantile Exchange lost early gains and moved down 52 cents to US$91.58 a barrel.

Markets were unimpressed with an agreement early Friday by the leaders of the 17 euro countries to push ahead with a single banking supervisory body. The leaders remained vague on key details, such as when the supervisor will be up and running.

Some investors and analysts worry that Europe’s politicians may have lost the incentive to fix things quickly now that market turmoil has subsided. The borrowing costs of countries like Spain have eased since the European Central Bank unveiled in September a new bond-buying program.