Canadian dollar loses more ground amid eurozone uncertainty, rising commodities

TORONTO – The Canadian dollar eased further Thursday as traders opted to avoid risk amid increasing doubts that the European Union can get a handle on its rapidly worsening government debt crisis.

The loonie fell 0.28 of a cent to 97.36 cents US as markets continued to buy into U.S. Treasuries. However, the Canadian currency was off early lows as commodity prices advanced.

Leaders of the 27-member European Union ended their one-day meeting Wednesday apparently no closer to fixing the financial crisis or determining how to deal with the growing possibility that Greece could be forced to exit the eurozone monetary union.

But political uncertainty in Greece is just one of the fires that Europe needs to put out. Leaders are also worried about rising borrowing costs in Spain and Italy that could force them to seek bailouts, just like Greece, Portugal and Ireland.

The lack of urgency to find solutions sent the euro to levels not seen in almost two years, trading at US$1.2593 on Thursday, down from US$1.2599 late Wednesday.

“As uncertainty remains high, a sustained (euro) rally is unlikely. However, a short period of retracement could easily materialize, especially as markets have already priced in a fairly bleak scenario for Greece,” observed Scotia Capital chief currency strategist Camilla Sutton.

“We hold a year-end euro target of 1.25 and do not expect a EUR collapse.”

The Canadian dollar has sold off in the last eight consecutive sessions as traders avoid resource-based currencies such as the loonie. The Canadian dollar has plunged more than four cents since the beginning of this month.

Prices for oil and metals advanced even as HSBC Corp. said Thursday that its Purchasing Managers Index, based on a survey of Chinese manufacturers, showed activity weakened further in May.

A preliminary PMI, based on responses by 85 to 90 per cent of companies surveyed for the full index being released later, fell to 48.7 from April’s 49.3 on a 100-point scale. Numbers below 50 indicate a contraction.

The weak showing came a day after China’s cabinet promised to step up efforts to reverse a steep slowdown in the world’s second-largest economy and said it would encourage private investment in energy and other state-dominated industries.

There were also mounting signs of a deep recession in the eurozone.

The monthly purchasing managers index from Markit, a gauge of business activity, fell to 45.9 in May from 46.7 in April. The fall was bigger than the expected decline to 46.5. Anything below 50 indicates a contraction.

The July crude contract on the New York Mercantile Exchange gained 76 cents to US$90.66 a barrel after closing below $90 Wednesday for the first time since the end of October.

The July copper contract on the Nymex rose three cents to US$3.43 a pound and the June gold bullion contract in New York gained $9.10 to US$1,557.50 an ounce.