TORONTO - The Canadian dollar closed below parity with the U.S. dollar on Tuesday as lower global growth worries depressed commodity prices and curbed appetite for riskier currencies such as the loonie.
Uncertainty over the level of participation by private creditors in Greece's planned bond swap two days before a critical deadline also discouraged traders.
The currency fell 0.64 of a cent to 99.94 cents US, the first time the loonie has closed below parity since Feb. 10, as traders bought into the relative safety of the American dollar.
"Rising concerns over global growth expectations as well as the sense that many markets are 'overdone' have encouraged the turn in markets," said Scotia Capital chief currency strategist Camilla Sutton.
"We are entering a period of retracement."
Concerns about China’s slowing growth continued to dampen sentiment after Chinese Premier Wen Jiabao announced that Beijing was targeting a lower growth rate of 7.5 per cent, compared with eight per cent before.
While that had been largely widely anticipated, it prompted some traders to fret about the state of the global economy.
Strong Chinese growth has been an important prop for a global economy still struggling to recover from the 2008 financial crisis, and that growth has also supported higher commodity prices.
Other data showed that the eurozone economy contracted during the fourth-quarter. Gross domestic product dropped 0.3 per cent from the previous quarter, with weakness across all the subcomponents.
Yet another report showed that Brazil's economy expanded 2.7 per cent last year, well below the 7.5 per cent growth seen in 2010. Officials say the economic problems in Europe and the U.S. are mostly to blame because of lower demand for Brazil's commodities.
"Together it points to a notably weak economy and adds to the negative global growth overtones provided by yesterday’s announcement from China," added Sutton.
Copper was among the biggest commodity losers Tuesday, as the May contract on the New York Mercantile Exchange lost 12 cents to US$3.74 a pound on top of a four cent loss Monday amid demand. China is the biggest consumer of the metal, widely viewed as an economic barometer because it is used in so many businesses.
The April crude contract on the Nymex was down $2.02 to US$104.70 a barrel.
Gold bullion also lost ground as the April contract lost $31.80 to US$1,672.10 an ounce.
Greece was also on investors' radars ahead of an expected announcement Thursday of the level of participation in the country's bond swap. The so-called Private Sector Involvement, or PSI, is an integral part of Greece’s second bailout without which the country could default.
On Monday, the banking group leading negotiations on behalf of the creditors said that 12 of the largest investors have committed to participating in the plan.
The success of the deal depends on high participation.