TORONTO — The loonie closed sharply lower Wednesday amid a strong indication that the damage from Europe’s debt crisis is spreading to the heart of the eurozone and the region’s biggest economy — Germany.
Sentiment was also pressured by grim economic data which sent traders to the safe haven of U.S. Treasuries and an indication that Canadian interest rates could stay unchanged through next year.
The Canadian dollar fell 0.99 of a US cent to 95.37 cents US
Recent indicators have shown the Canadian economy rebounded strongly in the third quarter.
But Bank of Canada governor Mark Carney made clear during a speech Wednesday that the data amounts only to a temporary respite from worsening economic conditions.
He also called the European government debt crisis “barely contained.”
“In this environment, the bank judges it appropriate to maintain the considerable monetary policy stimulus in place,” he said.
An auction of German government bonds technically failed Wednesday, deepening fears that the debt crisis is spreading to the wealthier members of the eurozone.
The sale of six billion euros of 10-year government bonds attracted bids totalling just 3.889 billion euros. The Bundesbank accepted 3.644 billion euros in bids, leaving the central bank to pick up the slack — 39 per cent of the total amount on offer.
There was also disappointing news from China, which has been one of the few bright spots since the economic crisis of 2008 sent global economies into a slump.
HSBC’s flash purchasing managers’ index indicated that China’s industrial sector is slowing. The index fell to 48 in November from 51 in October — its sharpest drop since March 2009. A reading below 50 indicates contraction from the previous month.
In Europe, where a worsening government debt crisis has raised fears about the future of the euro itself and pushed the region to the brink of recession, a closely watched survey from financial information company Markit indicated that eurozone economies contracted for the third month running in November.
Although its monthly composite purchasing managers index rose to 47.2 in November from 46.5, it remains below the 50 mark, the threshold between expansion and contraction.
Markit said the survey suggested that the eurozone is contracting at a quarterly rate of 0.6 per cent in the fourth quarter and that the problems are increasingly spreading to Europe’s two biggest economies, Germany and France.
Also, eurozone industrial orders collapsed by a massive 6.4 per cent in September from the previous month.
Analysts said the figures are likely to pile the pressure on the European Central Bank to cut interest rates again, possibly as soon as next month.
Worries about lower demand and the higher U.S. dollar pushed oil prices down sharply. A stronger greenback usually helps depress oil prices, which are denominated in dollars, as it makes oil more expensive for holders of other currencies.
The January contract for crude on the New York Mercantile Exchange lost $1.84 to US$96.17 a barrel.
Metals also sold off with the December copper contract on the Nymex down five cents to US$3.28 a pound.
Bullion prices also retreated, with the December gold contract in New York off $6.50 at US$1,695.90 an ounce.