The loonie fell to 92.78 cents US Wednesday, down almost a full cent from Tuesday, as stock markets continued to fall over tight credit conditions trumped by a positive U.S. inflation report.
At one point the Canadian dollar dove 1.06 to 92.61 cents US cents, its lowest level since May.
By Wednesday afternoon, Toronto's S&P/TSX composite index was down 28.97 points to 13,213.65. On Tuesday, it took a 185-point plunge, with the financial sector taking the brunt of the hit as the credit crunch hit Canada's commercial debt markets.
The loonie dropped 0.97 of a cent from Tuesday, as weakness in global financial markets has indicated to currency markets that the Bank of Canada won't increase its key interest rate next month, as had been widely expected.
"It is partially to do with subprime mortgage meltdown ... in the United States," BNN's Michael Kane told 麻豆影视net.
"The ripples that have been going through the debt markets because of that have spread into Canada."
Kane said investors "get a little nervous" if there are credit concerns in a country, and turn to places where they get a better rate of return and less risk.
He noted the Canadian dollar is down substantially against the Japanese yen.
"People are borrowing in Japan and buying in countries where interest rates are higher, which is just about everywhere, including Canada," he said.
"Now they're unwinding that particular investment, and as a result are selling the Canadian dollar."
Other factors in the loonie decline include the strengthening U.S. dollar and a Statistics Canada report Tuesday that said manufacturing shipments tumbled 1.8 per cent in June to $48.6, the largest decline since January.
"The expectation was that it would be a decline of just two-tenths of a percentage point," Kane said.
Most of the export decline was attributed to a 13.3 per cent drop in the auto sector.
Overseas stock markets continued to slide Wednesday, suggesting North American stocks would be in for a another rough day.
Central banks worldwide, including the Bank of Canada, have supplied billions of funds to the interbank lending market over the past week to head off a liquidity crunch and keep interest rates stable.
On Wednesday, the central bank said it is temporarily expanding the list of collateral eligible for use by market participants in special purchase and resale agreements.
The bank said that in addition to accepting Government of Canada securities as collateral for SPRAs, the bank will also accept all securities that are already eligible as collateral for the standing liquidity facility.
"It's just like oiling the markets properly," Marc Levesque, chief strategist at TD Securities, told The Canadian Press.
"They're trying to ensure that you don't get a liquidity crunch in the overnight market due to the fact that there are people out there that are unwilling to purchase certain types of securities."
With files from The Canadian Press
