TORONTO - The loonie tumbled almost three US cents Thursday to its lowest level in about a year as a gloomy assessment of the U.S. economy sent commodity prices reeling and traders to the safe haven status of the U.S. dollar.
The Canadian dollar was down 2.78 cents to 96.63 cents US.
That followed a drop of over a cent Wednesday when the currency closed below parity with the greenback for the first time since the end of January.
Traders fled risk and into U.S. Treasurys after the U.S. Federal Reserve said Wednesday that there are "significant downside risks to the economic outlook."
The Fed statement came as the central bank took steps to stimulate the economy Wednesday that had largely been expected.
But investors were troubled because the central bank’s statement showed it expected a deep and persistent downturn.
"We had a very negative reaction to the Fed’s actions," said Mark Chandler, head of Canada FIC Strategy at RBC Dominion Securities.
"I suspect it was simply a fact of the emperor’s clothes, that people are worried that the (Fed’s) toolchest is quite bare for policymakers to do much at this stage."
Rising global economic uncertainty has pushed investors to the greenback as it is perceived as a safe option during times of financial turbulence.
Whenever there is a flight to quality towards the U.S. currency — even amid a slumping American economy — the Canadian dollar usually gets caught in the crossfire.
Besides a move towards the greenback by international money traders, falling commodity prices have also hit the Canadian currency, which is seen as linked to the price of oil, minerals and other resources.
"Risky assets in general — and people usually keep commodities within that group — are under pressure and as long as that continues it will just exacerbate the weaker move of the Canadian dollar," added Chandler.
Oil prices plunged below US$82 a barrel, extending losses from the previous session as worries about much lower demand sent the November crude contract on the New York Mercantile Exchange falling $4.37 to US$81.55.
Copper prices also fell sharply with the December contract 23 cents lower to US$3.54.
Earlier this week, copper prices hit a nearly 10 month low as demand weakened for the widely used industrial metal. Oil prices are also declining as are prices of other commodities used in industry, construction and other sectors around the world.
Despite the flight to safety, gold prices also tumbled with the December contract on the Nymex down $66.50 to US$1,741.60 an ounce.
Chandler also believes that economic conditions will keep the Canadian dollar below parity for a while yet.
In the near term, there’s more scope for the Canadian dollar to weaken, he said.
If and when, the world gets a bit better news on growth, then you would see the currency drift back toward parity. But it may be a story that’s really for the early to mid-part of next year.
Elsewhere Wednesday, global mining giant Rio Tinto plc said some of its customers are asking the company to delay shipments of iron ore and other metals — the latest sign the global economic slowdown is squeezing the resources sector.
"It is noticeable that markets are somewhat weaker," Rio Tinto CEO Tom Albanese said in an interview with the Financial Times of London published Wednesday.
"In a few cases, customers are asking to reschedule deliveries. This is consistent with customers being cautious about the current state of business."
Lower commodities prices will put downward pressure on the Toronto Stock Exchange — a market where stocks of banks, miners and energy companies play an important role. They also affect the Canadian dollar, a commodity-tied currency that tends to rise when global prices for oil and metals are on the way up and fall when they drop.
Commodities also make up nearly a third of the value of the London's stock market and are important to markets in Australia, Brazil and South Africa.
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