02/22/2013 11:46 EST | Updated 02/22/2013 11:47 EST

Canadian Dollar Exchange Rate Hits 7-Month Low On Bad Economic News


TORONTO — The Canadian dollar was at another seven-month low Friday morning amid data showing lower than expected retail sales and tame inflation figures.

The Canadian dollar is trading at 97.66 cents US this morning, down 0.50 of a cent from yesterday's close.

Retail sales fell more than expected in December, led by a decrease in vehicle sales.

Statistics Canada says sales declined 2.1 per cent in the final month of 2012, much more than the 0.3 per cent decline that economists had expected. The drop followed five consecutive monthly gains in retail sales.

Excluding sales at motor vehicle and parts dealers, retail sales decreased by 0.9 per cent.

"The holidays weren't very happy for retailers,'' observed CIBC World Markets economist Emanuella Enenajor.

"The decline in retail volumes adds measurable downside risk to GDP in December, which could post a 0.3 per cent contraction, leaving fourth-quarter growth likely tracking below the Bank of Canada's one per cent call.''

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Meanwhile, there was a small increase in the Consumer Price Index last month.

Statistics Canada says the CPI rose 0.5 per cent in January compared with a year earlier.

The agency said the main factor in the smaller increase in the CPI was gasoline prices, which fell 1.8 per cent year-over-year.

On a seasonally adjusted monthly basis, the CPI decreased 0.1 per cent in January after posting no change in December

The loonie has shed about 1 1/2 US cents this past week due to a number of factors, including sliding commodities, worries about the strength of the Canadian housing sector and the price differential between benchmark Brent crude and Western Canadian Select from the oilsands.

Traders are also concerned about U.S. economic strength, particularly as a March 1 deadline looms when more than US$85 billion in across the board spending cuts will be triggered.

Markets have also been depressed this week over concerns the U.S. Federal Reserve may abandon its easy monetary policy sooner than many analysts have been predicting.

The release of minutes from the Fed's latest policy meeting showed that some policy-makers were worried that the bank's US$85 billion in monthly bond purchases could eventually unsettle financial markets or cause the central bank to take losses.

The purchases, commonly known as quantitative easing, are designed to boost the U.S. economy by increasing liquidity in financial markets.

Commodity prices were generally higher after a string of steep losses.

Commodities have been punished by a U.S. dollar which strengthened after the release of the Fed minutes on Wednesday. Also, oil prices were undercut by data showing U.S. oil inventories rose last week by a much more than expected 4.14 million barrels.

The April crude contract on the New York Mercantile Exchange rose 35 cents to US$93.19 a barrel after tumbling about US$4 over the previous two sessions.

Gold was lower for a fourth day with the April contract down $2.30 to US$1,576.30 an ounce.

The latest declines in bullion prices were sparked by the Fed minutes because the central bank's quantitative easing has supported gold. That is because the bond buying program has encouraged worries about rising inflation and gold is seen as a hedge against rising prices.

And March copper was ahead a penny at US$3.56 a pound after losing almost 10 cents over the previous two sessions.

There are concerns about the health of the eurozone going into the weekend. This weekend's Italian elections could stoke renewed worries over Europe's' debt crisis especially if there is a protracted period before a government is formed.