The loonie was unchanged at 97.06 cents US. The loonie had earlier traded higher after Statistics Canada reported that the economy grew by 0.6 per cent in July, rebounding from a 0.5 per cent decline in June. Economists had expected gross domestic product growth of 0.5 per cent for July.
But markets were nervous as a probable partial shutdown of the U.S. government at midnight seemed increasingly likely, with lawmakers unable to agree on a compromise budget deal, leaving traders to consider just how much the economy could be damaged.
"We had been fairly upbeat in our forecast for three per cent growth Q4, but the shutdown, and some disappointments in durable and capital goods orders, now looks to trim that to 2.3 per cent," said a commentary from CIBC World Markets.
An even more worrisome deadline comes up Oct. 17, when the U.S. government hits its debt limit and will begin running out of cash to pay its bills.
Traders were also focused on Italy where Prime Minister Enrico Letta faces a confidence vote on Wednesday after ministers from former premier Silvio Berlusconi’s centre-right bloc pulled out of the five-month-old government. Though Italy hasn’t needed a financial bailout like some other countries that use the euro, such as Greece and Portugal, it has high debts that have compelled successive governments to instigate wide-ranging economic reforms.
Oil prices fell amid worries about the economic impact from a U.S. government shutdown and data showing that Chinese manufacturing activity picked up more slowly than expected in September.
A survey by HSBC Corp. showed that manufacturing activity expanded marginally this month, rising to 50.2 from August’s 50.1. But it surprised analysts by coming in much lower than the 51.2 in a preliminary version earlier this month.
HSBC said the reading was still positive because although it expanded only slightly, it showed further improvement from July, when the index hit an 11-month low.
The November crude contract on the New York Mercantile Exchange fell 54 cents to US$102.33 a barrel.
December copper was off a cent at US$3.32 a pound while December gold bullion declined $12.20 to US$1,327 an ounce.