TORONTO – The Canadian dollar lost early headway to close down about two-thirds of a US cent Tuesday after the governor of the Bank of Canada said the economy may miss expectations in the first few months of this year and the slowdown may not be all related to the weather.
Stephen Poloz said in a speech in Halifax that slower than normal growth may be the new norm for Canada and the world and that that will require central bankers to keep interest rates low for longer than they would have in the past.
The loonie closed down 0.68 of a cent at 89.79 cents US. Just before the close, federal Finance Minister Jim Flaherty announced he was resigning from the cabinet. The dollar was down a further 0.07 of a cent after the announcement to 89.72 cents US.
The dollar had been higher earlier in the morning amid a strong manufacturing report. Statistics Canada said that manufacturing sales rose 1.5 per cent to $50.4 billion in January, the largest gain since February 2013. That was about double the increase that economists expected.
The loonie had also benefited from a willingness to take on risk because of the form of sanctions against Russia thus far, and a remark by Russian President Vladimir Putin that his country doesn’t want more of Ukraine’s territory.
Putin made the remark as he signed a bill formally annexing Crimea, two days after the Ukraine territory voted to break away and join Russia.
Western governments, including Canada, have imposed travel bans and asset freezes on people from Russia, Crimea and Ukraine who are seen as key players in organizing what’s considered an unlawful vote.
There has been relief on markets that sanctions levied against Russia for its role in the Crimea referendum are targeted specifically against individuals as opposed to wider measures that might disrupt Russian economic activity.
That relief has been reflected in gold prices, which fell for a second day. The April contract on the New York Mercantile Exchange fell $13.90 to US$1,359 an ounce.
Other commodities were mixed with May copper unchanged at US$2.95 a pound while April crude gained $1.62 to US$99.70 a barrel.
Traders also looked to the start of a two-day interest rate meeting of the U.S. Federal Reserve.
Data out Monday showing U.S. factory production in February rose at its fastest rate in six months reinforced expectations the Fed will go ahead with a third planned reduction of its stimulus, cutting monthly bond purchases by US$10 billion to $55 billion.