TORONTO – The Canadian dollar closed flat Thursday amid moves by China to spur its slowing economy and a late session fade in commodity prices.
The currency closed unchanged at 97.29 cents US.
It had risen as high as 97.93 cents US as optimism that Spain will be helped out of its banking crisis had also encouraged traders to buy up riskier assets such as equities and resource-based currencies like the loonie.
Oil prices weakened after three days of gains as the July crude contract on the New York Mercantile Exchange moved down 20 cents to US$84.82 a barrel.
The July copper contract gave up early advances and was off a penny at US$3.37 a pound after running up nine cents Wednesday.
Bullion prices tumbled $46.20 to US$1,588 an ounce.
Prices weakened as traders also looked for signs that the U.S. may implement stimulus measures as Federal Reserve chairman Ben Bernanke appeared before Congress. The central bank chief said the Fed is prepared to take further steps if the U.S. economy weakens, but he didn’t signal any action is imminent.
The Chinese central bank announced that it is cutting its benchmark lending rate for the first time in nearly four years as it tries to reverse a sharp economic slowdown. The interest rate on a one-year loan will be reduced by a quarter percentage point to 6.31 per cent effective Friday. Also, banks will reportedly be allowed to offer a 20 per cent discount from the benchmark rate.
Also helping sentiment Thursday were reports that European Union officials have been exploring ways to inject funds into Spain’s fragile banking sector without imposing strict conditions on the Spanish government. The Financial Times said Wednesday that such a move could make Spanish officials less reluctant to accept international assistance.
Spain’s banks are saddled with billions in soured property investments following the bursting of the country’s real estate bubble.
Spain successfully raised €2.1 billion from the bond markets Thursday, but at higher interest rates.
The Treasury paid an average interest rate of six per cent to sell €611 million in key 10-year bonds, up from 5.7 per cent in the last such auction April 19.
The yield demanded by investors has soared in recent weeks to as high as 6.7 per cent on fears over the country’s creditworthiness. A rate of seven per cent is considered by market watchers as unsustainable.
Earlier this week, Finance Minister Cristobal Montoro warned that the high risk premium of recent weeks indicated “the door to the markets is not open for Spain.”