Canadian dollar coins.Larry MacDougal
The Canadian dollar closed lower Tuesday after China's central bank again raised interest rates in a bid to dampen high inflation and oil prices fell for a fourth session.
The loonie was down 0.45 of a cent at 100.54 cents (U.S.) as the greenback gained against most other currencies, including the euro, late in the day.
The People's Bank of China announced Tuesday that the benchmark one-year deposit rate would rise by a quarter percentage point to 3 per cent and the one-year lending rate would increase by the same amount to 6.06 per cent.
It was the second move to tighten rates in just over a month.
Chinese inflation jumped to a 28-month high of 5.1 per cent last November before moderating in December, but it has worried leaders who fear that a sharp rise in living costs could trigger unrest.
Past moves by China to slow its economy have usually affected commodity prices in the short term and Tuesday's move was no exception as oil and copper prices closed well above early lows.
Sacha Tihanyi, currency strategist at Scotia Capital, said it's important to keep in mind that tighter monetary policy won't "reverse the positive marginal consumption path of a country (China) growing near double-digit rates.
"A country with reasonable and appropriately tight monetary policy settings can go on consuming commodities more sustainably in the medium term than a country that experiences violent boom and bust cycles on the back of inappropriately loose policy," Mr. Tihanyi said.
The March crude contract on the New York Mercantile Exchange fell 54 cents to $86.94 a barrel after going as low as $85.88 a barrel.
Crude prices have fallen for the past four sessions as fears ease that protests in Egypt could disrupt Middle East crude supplies.
Oil jumped above $92 to a 26-month high last week as violent clashes between supporters and opponents of Egyptian President Hosni Mubarak raised concern that shipping through the Suez Canal - a major transportation route for crude oil and cargo - could be affected.
The March copper contract on the Nymex was unchanged at $4.57 a pound.
Gold prices moved higher with the April bullion contract in New York up $15.90 to a three-week high of $1,364.10 an ounce.
Traders also took in good news on the Canadian housing sector for a second day. Canada Mortgage and Housing Corp. announced that the seasonally adjusted annual rate of housing starts was 170,400 units in January, up from 169,000 units in December, largely because of an increase in rural starts.
On Monday, Statistics Canada reported that the value of Canadian building permits increased 2.4 per cent to $5.7-billion (Canadian) in December following two consecutive months of declines.