TORONTO — The Canadian dollar closed lower Tuesday as the greenback gained against other currencies after Portugal became the latest European country to be warned of a possible credit rating downgrade.
The loonie closed down 0.11 of a cent at 98.28 cents US.
The Canadian dollar also declined amid data showing that inflation remains tame in Canada. Statistics Canada reported that the inflation rate declined to an annualized two per cent in November, down from 2.4 per cent in October.
Analysts said the lower inflation figure indicates the Bank of Canada will be in no hurry to raise interest rates before mid-2011.
“We are…expecting the current one per cent target to be maintained until the second quarter of 2011, at which time we anticipate that concerns about both the domestic and external economies will have sufficiently diminished for the bank to restart the process of normalizing interest rates,” said Royal Bank assistant chief economist Dawn Desjardins.
The U.S. dollar advanced after ratings agency Moody’s Investors Service warned Tuesday that it could downgrade Portugal’s public debt. It cited uncertain economic growth amid Lisbon’s austerity drive, the high cost of borrowing on global markets and worries about the banking sector.
Moody’s said Portugal’s sovereign credit rating could be lowered a notch or two from A1.
The agency last week slashed Ireland’s rating by five notches and also warned Spain and Greece of possible downgrades.
The loonie failed to benefit from a pickup in commodity prices amid signs of easing tensions on the Korean peninsula. Investors have been watching North Korea’s apparent decision to avoid confrontation with South Korea despite accusing it of being “reckless” with its military drills.
The February crude contact on the New York Mercantile Exchange was ahead 45 cents at US$89.82 a barrel.
The March copper contract in New York added seven cents to a record closing high of US$4.28 a pound.
And the February gold contract on the Nymex gained $2.70 to US$1,388.80 an ounce.