TORONTO — The Canadian dollar reversed direction Tuesday, dropping against the American dollar as it came under pressure from falling commodity prices, lower stock markets and renewed political uncertainty in Canada.
The loonie closed down three quarters of a cent at 90.57 cents US in late afternoon trading on currency markets, after rising earlier in the day.
The drop came as the Toronto stock market fell more than 178 points for its second straight triple-digit decline, despite American and Chinese data showing growth in the manufacturing sector.
The price of oil, a significant driver of the loonie’s value, backed off $1.74 to US$68.22, reflecting growing uncertainty about the strength of the expected global recovery and its impact on energy demand.
The Loonie also got a bit of a jolt from an announcement that the federal Liberals will no longer support the minority government of Prime Minister Stephen Harper, which could lead to a fall election.
Liberal Leader Michael Ignatieff delivered a fiery, campaign-style speech to his caucus, announcing that the party will no support the government. Liberal MP Bob Rae later said the party will present a motion of non-confidence at the first opportunity, which will come the first week of October.
“I think there’s a lot more focus on the global economic situation, what’s happening there and I think that is the bigger catalyst to drive the price action as opposed to the political situation,” said George Davis, chief technical analyst at RBC Capital Markets.
“We’re having a pretty miserable day in stocks, we’re having a pretty miserable day in commodities, so risk aversion levels are increasing fairly significantly — that’s negative for the Canadian dollar. ”
Gains in the U.S. dollar against other global currencies, including the euro, also helped push the Loonie lower.