Dollar falls 2 percent on weak commodities

Wed Mar 19, 2008 5:45pm EDT
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By John McCrank

TORONTO (Reuters) - The Canadian dollar plunged 2 percent against the U.S. dollar on Wednesday as commodity prices dropped and the focus of the market moved back to deteriorating global economic growth.

Canadian bond prices were mixed as falling stock markets boosted the long end, but the weaker Canadian dollar was seen easing pressure on some sectors of the economy, and was instrumental in lowering the short end of the curve.

The Canadian dollar closed at C$1.0152 to the U.S. dollar, or 98.50 U.S. cents, down from 99.52 Canadian cents to the U.S. dollar, or US$1.0048 at Tuesday's close.

U.S. crude oil prices fell 4.5 percent as investors fretted that a global economic downturn could undermine energy demand. Gold prices tumbled 6 percent and silver prices shed more than 7 percent in a broad-based commodities retreat.

Canada is a major exporter of many commodities, and its currency is often influenced by moves in their prices.

"We're seeing underperformance from most of the pro-cyclical and commodity currencies, however Canada is even underperforming them by another percent, so it a massive underperformance," said Camilla Sutton, currency strategist at Scotia Capital.

Recent data has shown Canada's economy is still running on all cylinders, but most analysts expect it to slow due to its close trading relationship with the U.S. economy, which has been in a crisis that started in its subprime mortgage sector.

Data released on Wednesday showed Canada's wholesale trade rose 2.6 percent in January, more than twice the amount expected by analysts.   Continued...

<p>A Canadian one dollar coin, also know as a loonie, is shown in Montreal, April 28, 2006. REUTERS/Shaun Best</p>