08/23/2012 08:39 EDT | Updated 10/23/2012 05:12 EDT

Loonie lower on Fed stimulus doubts, dismal data from China, Europe

TORONTO - The Canadian dollar closed lower Thursday amid doubts as to whether the U.S. Federal Reserve will embark on another round of stimulus to support the recovery and traders digested data showing deteriorating economic conditions in Europe and China.

The currency dropped 0.23 of a cent to 100.64 cents US.

The loonie had earlier traded higher and the greenback declined after minutes from the U.S. Federal Reserve's latest meeting Aug. 1 showed many members felt further support would be needed "fairly soon" unless the U.S. economy improved significantly.

The minutes didn’t say what steps might be taken. The boldest move would be to launch a new program of printing more dollars to buy bonds in an attempt to lower long-term interest rates. That, in turn, would encourage more borrowing and spending.

The Fed makes its next interest rate announcement Sept. 13. The central bank could also announce new stimulus measures at that time.

Analysts have pointed to a string of data released since Aug. 1 showing the American economy actually improving, with data showing better-than-expected job creation during July, higher retail sales, improving consumer confidence, and signs of a recovering housing market.

Also, St. Louis Federal Reserve Bank president James Bullard said Thursday on CNBC he wasn’t sure if a program, such as government-sponsored bond buying, was needed.

Meanwhile, a preliminary reading of manufacturing activity in China indicated that government stimulus efforts have not been able to neutralize global headwinds. HSBC’s manufacturing purchasing managers’ index (PMI) fell to a nine-month low of 47.8 in July, as weak global demand hit Chinese export orders. New export orders fell at their fastest rate in three years.

Traders have been hoping that the Chinese central bank might take further measures to stimulate the slowing economy. But some analysts think that policy-makers are likely to wait until after the 18th Communist party congress, scheduled for October, to take major action.

And in Europe, economic indicators also came in weak as the PMI of overall economic activity in the 17-country eurozone was at 46.6 points in August, only a tiny improvement from the previous month’s 46.5 and still very low. A number below 50 means the economy is contracting.

Analysts said the number shows the eurozone is firmly in recession, which will continue to hurt efforts to reduce government and boost investor confidence.

Commodity prices were mixed. The October crude contract on the New York Mercantile Exchange fell 99 cents to US$96.27 a barrel after two positive sessions that took oil to fresh three-month highs.

September copper was four cents higher at US$3.49 a pound while December bullion moved up $32.30 to US$1,672.80 an ounce.