Canadian dollar falls to new 11-year low before rebounding

The Canadian dollar hit a new 11-year low on Thursday before recovering to end the day with a slight gain.

The loonie closed at 75.09 cents US, up a sixth of a cent. But earlier in the day, it was trading just above the 74.50 cent level — down a third of a cent from Wednesday. The loonie has been falling steadily since May, knocked down by Canadian interest rate cuts and low oil prices.

The continued fall has been a reflection of concern about China's market, where data yesterday showed the manufacturing sector is shrinking.

That has put pressure on commodity prices and hurt Canadian markets and the loonie.

On Thursday, gold was rising and oil recovered, with West Texas Intermediate crude up 61 cents to $45.09 US a barrel. 

However, commodity prices are still well below their year-ago levels and copper and corn continued to fall.

Yesterday's retail sales data also weighed on the Canadian dollar as the 0.5 per cent rise in sales in July was lower than analysts had expected.

Markets still volatile

Markets in Toronto and New York have been volatile for six weeks, as worries over China's economic slowdown are  felt in the market.

Toronto's main stock index index fell 45 points to close at 13,339, narrowing its losses later in the day.

There was an early decline in the shares of auto parts giant Magna International Inc as analysts noted the company's exposure to Volkswagen, which is embroiled in an emissions scandal. But Magna recovered to close 65 cents higher at $62.48.

The Dow was down by triple digits at midday, but cut its loss to 79 points by the close, at 16,201.

Stock traders were encouraged late in the day by a report from JP Morgan saying program trading, which has contributed to volatility, would soon be triggered to buy into the market and push up stocks.

The Dow lost ground on Caterpillar's announcement that it would cut 10,000 jobs because of a pullback in construction and less oil and gas development. Caterpillar stock fell more than six per cent.

Investors will closely follow a speech on inflation and monetary policy later Thursday by U.S. Federal Reserve Chair Janet Yellen. After the Fed held off raising rates earlier this month stocks initially rose, but they fell again amid perceptions that the central bank may be foreseeing negative economic news.

"The fear factor was introduced by the Fed last week when they didn't raise rates," said Peter Cardillo, chief market economist at Rockwell Capital. "We're in a very jittery market that's not likely to reverse course until we get some clear indications from the Fed."