Economic growth concerns, timing of U.S. rate hike push loonie to five month low

Photo: The Canadian Press. All rights reserved.

Loonies are pictured in Vancouver, Sept. 22, 2011. THE CANADIAN PRESS/Jonathan Hayward

TORONTO - The Canadian dollar fell to a fresh, five-month low Friday amid a generally risk-averse market as the European Union and the U.S. levied another round of sanctions on Russia for its involvement in Ukraine.

Investors are also waiting on next week's U.S. Federal Reserve meeting on interest rates and a referendum that will decide whether Scotland leaves the United Kingdom.

The loonie lost 0.38 of a cent to 90.14 cents US, leaving the loonie with a loss of 1.76 U.S. cents since last Friday's close as elevated concerns about growth also weighed on the dollar.

The Canadian dollar fell almost a full U.S. cent on Thursday alone as weaker than expected Chinese inflation suggested slowing economic growth and pressured commodity-based currencies.

The U.S. greenback has also strengthened amid anticipation that the Federal Reserve is close to winding down its economic stimulus and closer to raising interest rates. Markets generally expect the central bank to move on interest rates sometime around the middle of next year, but analysts will scan the Fed's announcement for indications that it could move earlier.

Overseas, the European Union announced it will toughen financial penalties on Russia's banks, arms manufacturers and its biggest oil company, Rosneft. The United States also announced that its sanctions would be extended. Analysts point out that there will be a price for imposing sanctions since they will weigh on the European economy.

Also, there has been heightened concern about the Scottish referendum slated for Sept. 18, particularly after polls showed the results now are too close to call.

On the economic front, the Teranet-National Bank index of Canadian home prices was up in August, rising almost 0.8 per cent from July. It was the second consecutive month for the index to rise in 10 of the 11 metropolitan markets surveyed. The strongest monthly gains were in Winnipeg, Ottawa-Gatineau and Toronto. Montreal had the only decline.

U.S. retail sales rose by 0.6 per cent in August, which was in line with expectations.

Also, the University of Michigan's consumer index strengthened n September, rising to 84.6 from 82.5 in August.

Oil prices gave up more ground with the October crude contract in New York down 56 cents to US$92.27 a barrel after hitting a 16-month low during Thursday's session. Prices have been buffeted by a combination of lower demand and higher U.S. production.

Elsewhere on the commodity markets, December copper was ahead a penny at US$3.11 a pound, while December gold faded $7.50 to US$1,231.50 an ounce.