TORONTO - The Canadian dollar closed lower Tuesday as the International Monetary Fund downgraded prospects for Canada and other advanced countries.
The IMF's new outlook says Canada's economy will remain positive but this year's growth rate will be 2.1 per cent, falling to 1.9 per cent next year.
The IMF expects the U.S. economy to grow just 1.5 per cent this year and 1.8 per cent in 2012. That's down from its June forecast of 2.5 per cent in 2011 and 2.7 per cent next year.
The loonie was down 0.4 of a cent to 100.64 cents US
Bank of Canada governor Mark Carney said Tuesday that the world can avert another economic shock if policy-makers act.
Carney said in a speech the combination of sovereign debt worries and bad politics have sapped investor confidence, referring to "the debt-ceiling fiasco in the United States and the inability, to date, of European policy-makers to get ahead of their crisis."
Meanwhile, traders looked to moves by Greece to secure the next tranche of money needed to stave off default and the start of a two-day meeting by the U.S. Federal Reserves.
Greek Finance Minister Evangelos Venizelos is to hold a teleconference Tuesday evening with officials from the European Commission, International Monetary Fund and European Central Bank. He will try to convince the so-called troika that the country will meet strict budget targets promised in return for the rescue funds.
Though investors think Greece will avoid a default, the consensus is that the country will have to restructure its debts in some form next year given that it's likely to remain stuck in recession.
Analysts also say there is increasing speculation that Greece will hold a referendum on their membership in the European Monetary Union.
Meanwhile, some economists expect the Fed to eventually try for the third time to stimulate growth through a program to buy Treasurys to lower long-term interest rates at the end of its meeting Wednesday afternoon. That's a step known as "quantitative easing."
Last month, the Fed promised to keep its key interest rate near zero through mid-2013.
In other economic news, Statistics Canada announced that wholesale sales advanced 0.8 per cent in July to $48.2 billion after remaining unchanged in June.
Traders also took in news that Standard & Poor's cut Italy's credit rating late Monday by one notch to A from A-plus in light of what it sees as the country's weakening economic growth prospects and higher-than-expected levels of government debt.
Commodity prices were mainly higher following steep drops Monday as investors worried a Greek default would worsen global economic conditions and discourage demand.
The October crude contract on the New York Mercantile Exchange gained $1.19 to US$86.89.
December copper on the Nymex lost six cents at US$3.73 while the December gold contract in New York was up $30.20 to US$1,809.10 an ounce.