Canadian dollar declines amid weak commodities

Written By Unknown on Jumat, 01 Maret 2013 | 22.39

The Canadian dollar closed Thursday at a fresh eight-month low amid weak commodity prices and data showing the current account deficit down slightly but still at near record levels.

The currency was down 0.79 of a cent to 96.96 cents US as the country's current account deficit remained at near record levels for a third straight quarter.

Statistics Canada is expected to report Friday that Canadian gross domestic product grew by 0.7 per cent in the fourth quarter. But it looks like growth started to flatten at the end of the year as the economy likely contracted by 0.1 per cent in December after rising 0.3 per cent in November.

'If the recent weakness in the Canadian dollar persists, that could provide some assistance, but at current levels, the loonie remains overvalued.'—Benjamin Reitzes,senior economist

The current account is the difference between a country's total exports of goods, services and transfers, and its total imports of the same.

Statistics Canada reported that the country's current account deficit on a seasonally adjusted basis decreased $800 million to $17.3 billion in the fourth quarter.

The agency said that the deficit on trade in goods was reduced by $2.3 billion in the fourth quarter to $2.8 billion. It said that this largely reflected increased exports, led by energy products and by farm, fishing and intermediate food products.

Total exports of goods were up $1.7 billion to $114.5 billion in the fourth quarter. Energy products accounted for $1.6 billion of this increase, led by higher prices as volumes were down.

Total imports were down $600 million to $117.3 billion in the fourth quarter.

U.S growth

Analysts said they expected that the deficit would remain high.

"With the U.S. economy only slowly picking up steam, as fiscal uncertainty muddies the outlook, and commodity prices down, Canada's current account gap is expected to remain sizeable through 2013," said BMO Capital Markets senior economist Benjamin Reitzes.

"If the recent weakness in the Canadian dollar persists, that could provide some assistance, but at current levels, the loonie remains overvalued."

Other data showed the U.S. economy grew instead of contracting in the fourth quarter of 2012. The first revision to the gross domestic product report showed growth of 0.1 per cent, against the earlier read that showed a 0.1 per cent contraction.

In the background on financial markets were worries about an Italian election earlier this week which failed to yield a clear winner and the looming U.S. sequestration. That's the name for a series of automated, across the board spending cuts of US$85 billion set to take effect Friday.

The planned sequester could hit U.S. growth if no deal is reached to avoid it. Previous experience, however, suggests a last-minute deal will be cobbled together.


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