BUSINESS

Loonie lower after 2 days of gains as crude oil tumbles almost $3

02/26/2015 08:52 EST | Updated 04/28/2015 05:59 EDT
TORONTO - The Canadian dollar closed sharply lower Thursday following two days of strong advances as oil prices tumbled almost US$3 a barrel to the lowest level in a month.

The loonie declined 0.67 of a U.S. cent to 79.83 cents as April crude on the Nymex fell $2.82 to US$48.17, with prices beaten down by a stronger U.S. dollar and data this week showing a steep rise in U.S. inventories.

On the economic front, falling gasoline prices pushed January inflation lower.

Statistics Canada reported that its consumer price index fell by 0.2 per cent in the month, not quite as steep as the 0.4 per cent decline economists had generally expected.

The agency says that Canada's annual inflation rate in January was 1.0 per cent, compared with 1.5 per cent in December.

Gasoline prices fell 26.9 per cent year over year in January, reflecting the collapse in oil prices caused by a huge supply/demand imbalance. Oil prices have fallen 40 per cent since the end of November, when OPEC refused to cut production to bolster crude prices.

Inflationary pressures were similarly soft in the U.S. last month. The American consumer price index tumbled 0.7 per cent in January, again because of falling fuel prices.

Other data out Thursday showed that U.S. durable goods orders climbed 2.8 per cent in January.

Metal prices were higher as May copper headed up five cents to US$2.69 a pound while April gold gained $8.60 to US$1,210.10 an ounce.

The loonie had jumped about one U.S. cent over the last two sessions following remarks from Bank of Canada governor Stephen Poloz that were interpreted as lessening chances of the bank following up a quarter point rate cut in January with another decrease.

Poloz said last month's surprise rate cut has given the central bank time to figure out how best to steer the country back toward stability as a recent collapse in oil prices ripples across the economy.

He added that the rate cut in January, which reduced the central bank's overnight rate to 0.75 per cent, had given policy-makers more confidence the economy should be back on a more sound footing by the end of next year, rather than some time in 2017.

The central bank makes its next interest rate announcement on Wednesday.

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