Loonie hovers at 101 cents US; U.S. dollar gains strength on major currencies

TORONTO – The Canadian dollar lost strength early Monday as investors flocked to the perceived safety of the U.S. dollar as they await a crucial vote on Greek austerity measures.

The loonie fell 0.32 of a cent to 101 cents US after losing nearly a cent on Friday. The U.S. dollar is gaining ground against most major currencies in the wake of renewed fears the European sovereign debt crisis could derail global growth.

Developments in Greece and the eurozone this week will be top of mind ahead of the Greek austerity vote expected mid-week if they don’t pass, the financially-strapped country could have to default on its debt.

Concerns that Greece will fail to pass austerity measures this week, a requirement to receive bailout funds, has hurt the Euro and global risk sentiment, said Rahim Madhavji of Knightsbridge Foreign Exchange.

“The risk remains that a default would impact bank’s balance sheets and contagion would spread. Despite positive US data on Friday, risk sentiment remains the dominant force.”

He noted that other risks to the loonie are weakness in U.S. housing and U.S. and global growth data, as well as falling oil and commodity prices.

Oil prices fell 56 cents to $90.60 per barrel in electronic trading on the New York Mercantile Exchange. Gold prices lost $1.80 to $1,499.10 an ounce while copper prices fell six cents to $4.04 per pound.

Economic news this week that could cause a move in the loonie include the May consumer price index and economic growth data from April.

Economists expect headline inflation to rise by 0.3 per cent and core inflation to rise by 0.2 per cent, which would take annual core CPI to 1.5 per cent, above the Bank of Canada’s forecast of 1.4 per cent during the second quarter.

Statistics Canada is expected to announce that the Canadian economy faltered in April, with growth easing by 0.1 per cent following a 0.3 per cent rise in March, marking the second decline in three months.

Economists at BMO Capital Markets say a drop in manufacturing activity is expected, partly due to a pullback in auto production in the wake of the earthquake and tsunami that hit Japan on March 11.

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