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Loonie woes intensify on Fed speculation

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Loonie woes intensify on Fed speculation

The Canadian dollar fell by its biggest margin in two weeks as oil prices succumbed to Federal Reserve speculation. The monetary stimulus debate has raged on for many months, instilling permanent volatility in the global markets. Speculation concerning the timing and intensity of Federal Reserve stimulus reduction has tapered demand for riskier assets. As a commodity currency, the loonie is sensitive to swings in commodity prices, chief among them being oil, the nation’s largest export.

WTI for September delivery declined $2 a gallon to settle just above the $105 mark. Brent, the global benchmark, nudged up slightly to $110.88 a gallon.

The loonie sank for a third consecutive day against its North American counterpart, declining more than 0.4 percent. This sent USDCAD to 1.0395 after briefly surpassing the 1.04 plateau. The USDCAD is enjoying a slightly bullish upswing as the markets prepare for a gradual end to US quantitative easing. The range-bound North American pair will look to break through the 1.04 threshold ahead of the FOMC minutes.

The US and Canadian economies appear headed in opposite directions. Canada’s employment situation has gradually deteriorated, sending the Canadian unemployment rate to 7.2 percent. Earlier in the day Statistics Canada reported wholesale sales declined at a rate of 2.8 percent for June, much worse than the expected 0.7 percent decline. On Thursday Canada’s statistics agency is expected to report retail sales declined 0.3 percent over June, as the employment crunch weakens consumer confidence.

In other trading, the Canadian dollar advanced firmly against the New Zealand dollar, but edged down slightly against its Australian counterpart. Canada’s down-under commodity peers have signalled plans to weaken their currencies in an attempt to improve their waning export markets. According to Australia’s industry minister, the nation’s manufacturing sector may not survive without a debasement of its currency, which remains inconsistent with the weakness of commodity prices. Earlier in the month the Australian dollar fell to fresh three-year lows against the greenback.

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