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Canadian dollar falls as U.S. greenback strengthens

09/30/2014 02:42 EDT | Updated 11/30/2014 05:59 EST
The Canadian dollar was lower Tuesday as economic growth figures for July came in weaker than expected.

A U.S. dollar that is strengthening against most currencies also helped push down the loonie.

It fell 0.27 of a cent to 89.39 cents US in the morning, and had fallen further to 89.30 US by mid-afternoon.

Statistics Canada reported Tuesday that gross domestic product was flat in July with a slowdown in oil and gas and mining industries offsetting an improved outlook for autos.

The latest data out of the U.S. shows the American economy was expanding at a 4.6 per cent pace this spring.

That good news on the U.S. economy helped buoy the greenback amid an expectation that the U.S. Fed may start to raise interest rates sooner than expected.

Rising U.S. dollar could hurt recovery

The U.S. dollar is at a four-year high against a basket of global currencies.

That could complicate the pickup in GDP growth south of the border. It makes U.S. exports more expensive and it raises the price of many commodities, including oil and gold, which are traded in U.S. dollars.

Many economies in Europe are weak, with the European Central Bank reporting Tuesday that inflation was a minimal 0.3 per cent in September. The ECD is aiming for inflation of about two per cent and fears an deflationary spiral unless Europe can conjure some economic growth.

Chinese growth also is on track to slow this year. HSBC Corp.'s monthly purchasing managers' index showed that China's manufacturing activity in September held steady at the previous month's low level – not declining, but barely rising.

There is also nervousness about the impact of rate hikes, with fears that it could force a collapse in stock markets. All of these risks hang over the U.S. expansion.

Commodities prices down

Canadian exports have been rising, with the trade surplus increase to $2.6 billion in July, amid several months of expanding auto exports. The falling dollar helps make Canadian products competitive.

Canada’s loonie is also being hammered by lower prices of key commodities, including wheat, corn and oil. The Scotiabank commodities index released yesterday found prices were at their lowest level this year.

This reflects the limp demand from China and the fact that oil, one of Canada’s most important exports, is getting more expensive for most of the world.

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