The loonie was down for a sixth session, falling 0.98 to 95.42 cents US — the Canadian dollar's lowest since late November 2011 — amid data showing a disappointing read on Canadian retail sales and tame inflation.
But the real culprit was a stronger U.S. dollar, which has risen since U.S. Federal Reserve chairman Ben Bernanke indicated that the central bank is likely to start winding up monetary stimulus later this year.
He signalled Wednesday that the Fed will begin to slow down its bond purchases this year and end them in 2014 — an indication that the U.S. economy is getting strong enough to withdraw the extraordinary stimulus program.
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The U.S. currency has strengthened as bond yields increased amid growing expectations that the end is in sight for a Fed program known as quantitative easing, which stimulates the economy through bond purchases.
The yield on the U.S. benchmark 10-year bond hovered around 2.4 per cent Friday morning, up from about 2.25 per cent before Bernanke made his announcement Wednesday. The yield was as low as 1.6 per cent in early May.
The Fed’s purchase of US$85 billion a month in bonds has kept long-term rates low and also helped fuel a strong rally on stock markets, the resource heavy TSX being an exception.
Statistics Canada said that the annual inflation rate rose to 0.7 per cent in May while core inflation was stable at 1.1 per cent, both below expectations.
Inflation was up 0.2 per cent in May compared with April. The consensus estimate had been for a month-month increase of 0.4 per cent and a year-year increase of 0.9 per cent.
April’s headline inflation rate had been an extremely low 0.4 per cent and core inflation was 1.1 per cent, which is at the low end of the Bank of Canada's target range of between 1.0 and 3.0 per cent..
Canadian retail sales edged up a weaker than expected 0.1 per cent to $39.5 billion in April, following flat sales in March. Statistics Canada said that stronger sales at motor vehicle and parts dealers were offset by weaker sales at gasoline stations. Economists had expected sales to rise by 0.2 per cent.
Commodity futures also started to bounce back from a severe mauling. Prices fell heavily Thursday, partly because of demand concerns that arose from a weak reading on Chinese manufacturing but also because of the appreciating greenback.
A higher U.S. dollar pressures commodities because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals, which are dollar-denominated.
The July crude contract on the New York Mercantile Exchange fell $1.44 to US$93.70 a barrel.
July copper edged up two cents to US$3.08 a pound and gold climbed $7.20 to US$1,293.40 an ounce after tumbling $88 to a 2 1/2 year low.