Loonie drops as Q1 GDP growth meets expectations, U.S. job creation disappoints

TORONTO – The Canadian dollar closed at a five and a half-month low Friday as commodity prices retreated on data showing a big drop-off in American job creation and another indication of a faltering Chinese economy.

The loonie tumbled 0.6 of a cent to 96.21 cents US, failing to find lift from another report showing Canadian economic growth met expectations for the first quarter, rising at an annualized pace of 1.9 per cent.

Meanwhile, the U.S. Labour Department said the American economy only managed to create 69,000 jobs last month, far below the modest expectation for 158,000 jobs. As a result, the U.S. jobless rate edged up 0.1 of a point to 8.2 per cent.

Earlier data showed a further slowing of China’s manufacturing sector.

China’s state-affiliated Federation of Logistics and Purchasing said that its purchasing managers index, or PMI, fell 2.9 percentage points to 50.4 per cent in May, just above the 50 level that signifies expansion. The index was at 53.3 in April.

And HSBC’s index, which is adjusted for seasonal conditions and is more weighted toward export manufacturers, fell to 48.4 in May from 49.3 in April.

The European debt crisis is pinching China’s export manufacturers, while moves to control property prices have chilled spending on construction.

Some analysts said the surveys suggest China’s economic growth will fall below eight per cent in the second quarter.

China has been an important element in helping the global economy recover from the recession that followed the 2009 financial collapse.

Crude prices closed close to US$82 Friday after worries about a slowing global economy, the eurozone crisis and a higher U.S. dollar combined to drive oil down 17 per cent last month. The July contract on the New York Mercantile Exchange fell $3.30 to US$83.23 a barrel.

The July copper contract on the Nymex fell five cents to US$3.31 a pound after dropping 12.43 per cent in May. Copper is widely viewed as a key economic barometer as it is used in so many industries and China has been the biggest purchaser of the metal.

The loonie was off the worst levels of the session as bullion prices ran up sharply after the jobs report with the August contract up $57.90 to US$1,622.10 an ounce.

Weak data from Europe was one more reason for traders to keep to the sidelines Friday. A survey on Europe’s manufacturing sector was decidedly downbeat, falling to 45.1 points, with the measure for Germany, which had grown steadily throughout debt crisis of the past two years, hitting a 35-month low of 45.2.

Analysts said the figures suggested the region would experience an even deeper economic downturn than previously forecast.

The slide in the dollar also comes ahead of the Bank of Canada’s next announcement on interest rates, which is scheduled for Tuesday. Expectations have undergone a significant change since the last announcement in April, when the bank again left its key rate unchanged at one per cent but hinted that rates could rise.

Markets had priced in a rate hike before the end of the year but worsening economic conditions and doubts about the future of the eurozone have persuaded traders that the central bank won’t move on raising rates until next year.

The loonie fell 4.63 cents US during May.