09/13/2013 10:15 EDT | Updated 11/13/2013 05:12 EST

Loonie heads lower amid weakened gold, larger debt loads in Canada

TORONTO - The Canadian dollar headed lower Friday as commodities, particularly gold prices, continued to decline.

The loonie dipped 0.20 of a cent to 96.65 cents US.

The Canadian dollar, which has recently seen strength against a weakening U.S. dollar, has been under pressure in the last few days as worries over Syria have eased and commodity prices have waned.

Earlier this week, the Syrian government agreed to hand over its chemical weapons stockpile in an effort to avoid a U.S. military strike. Top U.S. and Russian diplomats are holding talks in Geneva to discuss the specifics.

Uncertainty over whether the U.S. would attack the Middle Eastern country had unsettled markets, but now that a diplomatic solution seems to be in the works investors are regaining confidence.

In turn, this has caused commodities to fall. Generally, people flock to gold in times of political crisis.

Gold prices continued to fall Friday after closing at their lowest level in a month on Thursday. December bullion dropped $22 to US$1,308,60 an ounce, while December copper was down a penny at US$3.20 a pound.

The October crude contract dipped 39 cents to US$108.21 a barrel.

"The Canadian dollar, most of the time, is driven by commodity prices, the state of the U.S. dollar and interest rate differentials with the U.S.," said Bob Gorman, chief portfolio strategist with TD Waterhouse.

"The relatively high price of oil has been supportive of the Canadian dollar as of late... but if we, in fact, see some ebbing of those concerns in the Middle East, we will see the Canadian dollar will drift a little lower."

Meanwhile, the U.S. Commerce Department reported that Americans boosted their spending at retail businesses only modestly in August, indicating that economic growth remains sluggish. Consumers bought more cars, furniture and electronics last month but held back on most other purchases.

Spending at businesses rose just 0.2 per cent last month — the smallest gain in four months. But the government said retail spending was stronger in the previous month than first estimated, revising the July estimate to 0.4 per cent from 0.2 per cent. Analysts had been expecting a monthly rise of 0.4 per cent for August.

The U.S. Labor Department said higher energy costs pushed wholesale prices up 0.3 per cent last month. Prices were up a modest 1.4 per cent over the past year, the lowest year-over-year level since April.

Excluding volatile food and energy costs, wholesale prices were unchanged in August but up 1.1 per cent over the past year, the smallest gain since June 2010 and another sign that inflation remains under control.

The U.S. Commerce Department also reported that businesses restocked their shelves and warehouses in July at the fastest pace since January as sales rose, a hopeful sign for economic growth.

Business stockpiles increased 0.4 per cent in July from June, the department said Friday, after ticking up just 0.1 per cent the previous month. Total business sales rose 0.6 per cent in July, up from just 0.2 per cent in June.

Rising stockpiles can be a good sign for the economy because they suggest companies expect greater sales. Greater inventory building also means higher factory production and economic growth. And higher sales mean that companies are less likely to be stuck with excess goods.

The release of the U.S. figures are timely as the Federal Reserve prepares to meet next week. The central bank closely monitors wholesale and consumer prices, determined to keep inflation running at around two per cent.

It's widely expected that the Fed will announce it will begin rolling back some of its US$85 billion in monthly bond purchases now that the economy is showing signs of improvement.

The consensus is that it will reduce its stimulus anywhere from US$10 billion to US$15 billion.

In Canada, Statistics Canada says Canadians boosted their borrowing in the second quarter. The agency said growth in credit market debt increased from 0.5 per cent to 1.6 per cent in the quarter. Household debt and its potential impact on the economy have been identified as a key concern by the central bank and Finance Minister Jim Flaherty.