09/09/2011 09:13 EDT | Updated 11/09/2011 05:12 EST

Canadian dollar sinks against U.S. dollar on weak August jobs data

TORONTO - The Canadian dollar plunged closer to parity with its U.S. counterpart at midday Thursday after data showed the Canadian economy lost jobs in August.

The Canadian dollar fell 0.81 of a cent to 100.40 cents US after data showed Canada's economy shed jobs for the first time in five months in August.

That pushed the unemployment rate up to 7.3 per cent as workers in construction, transportation and warehousing struggled to find jobs.

The loss of employment was small — 5,500 — but it was the second consecutive month that jobs growth was virtually non-existent in Canada, a clear signal that the economy continues to struggle.

Economists had expected a 25,000 job gain.

"Canada’s job market is likely to churn out only minimal job gains in the coming months, as ongoing U.S. weakness and the confidence-sapping impact of recent financial turmoil weighs on Canadian hiring," said Derek Burleton, deputy chief economist at TD Economics.

"Look for the jobless rate to continue to nudge up to about 7.5 (or slightly higher) later this year."

Furthermore, Canada Mortgage and Housing Corp. said the pace of housing starts slowed in August to a seasonally adjusted annual rate of 184,700 units. Activity in urban areas dropped by 10.2 per cent to 165,800 units — mostly due to fewer multiple-dwelling starts.

Weaker commodity prices also added pressure on the loonie.

Oil prices dropped US$1.81 to $87.24 per barrel. Gold prices added $2 to US$1,859.50 per ounce and copper prices lost 14 cents to $4 per pound.

In the U.S., hopes that Federal Reserve Chairman Ben Bernanke would use a speech Thursday to hint at another round of stimulus were not met and fuelled a bout of selling in markets after a week when most stocks have managed to hold their own.

"By simply reiterating that the Fed had a 'range of tools that could be used to provide additional monetary stimulus' and would be discussing them later this month, the markets appear to be coming to the realization that the Fed could well be running out of bullets in its fight to boost the U.S. economy," said Michael Hewson, markets analyst at CMC Markets.

Investors also did not appear to be encouraged by President Barack Obama's $447 billion plan for creating jobs as it's likely to prove difficult to get the proposed measures through Congress since Republicans control the House of Representatives.

Traders were also treading lightly as the financial leaders of the world's most developed economies were wrangling Friday over how to revive a faltering economic recovery at a time when interest rates are already low and government debt is high.

Speculation is building over whether the countries will take efforts toward a co-ordinated loosening of monetary policy.

But a report by Scotia Economics said that would be surprising following the European Central Bank, Bank of England and Bank of Canada's decision to maintain interest rates at low levels.

"Speculation is swirling over what the G7 might or might not announce and how much pressure countries who are intervening in (foreign exchange) markets might face," it said.