BUSINESS
04/18/2012 08:51 EDT | Updated 06/18/2012 05:12 EDT

Canadian dollar loses ground as prices for crude oil, metals decline

TORONTO - The Canadian dollar closed lower Wednesday amid sliding prices for oil and metals.

The commodity sensitive loonie was down 0.11 of a cent at 100.88 cents US after surging almost a cent Tuesday as the Bank of Canada opted to keep interest rates unchanged at one per cent for the time being.

But the central bank hinted that higher interest rates could come sooner than many economists expected as economies around the world and in Canada are doing better than it previously thought.

The central bank has said the current level of interest rates are unsustainably low but the exact timing of any actual increase by the Bank of Canada has been the subject of speculation and debate.

Mark Chandler, head of Canadian FIC Strategy at RBC Dominion Securities, observed that Canada's central bank had also hinted last year that it was preparing to tighten monetary policy but backed off in the wake of a weakening of the global economy last summer.

"However, barring any such significant deterioration, a rate hike this year should be a very concrete possibility," Chandler said.

Chandler said he thinks the market has fully priced in a quarter-point hike in rates by December and reckons there is a 50-50 chance of a hike as soon as September.

Commodity prices had registered solid gains in the wake of a successful Spanish bond auction and strong corporate earnings.

But on Wednesday, the May contract on the New York Mercantile Exchange was down $1.53 to US$102.67 a barrel.

Copper prices were off two cents to US$3.63 a pound while bullion declined $11.50 to US$1,639.60 an ounce.

Meanwhile, the Bank of Canada said Wednesday in a new economic outlook that Canada's growth rate in the first three months of 2012 will come in at 2.5 per cent, well above the 1.8 per cent level it had expected three months ago.

But the bank says not all is rosy in Canada or around the world, with the potential of a nasty debt crisis still looming in Europe.

It’s also continuing to warn that Canadian households are borrowing too heavily against the value of their homes, making them vulnerable to a correction in housing prices.

Earlier in the session, the Financial Times reported that Bank of Canada governor Mark Carney has been approached to take over the same post at the Bank of England. The central bank has said the report is not accurate and Carney repeated that statement at a news conference in Ottawa.