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Loonie falls amid U.S. data, traders eye the unfolding conflict in Iraq

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TORONTO - The loonie finished lower Tuesday as traders looked to broader market trends for guidance in the absence of major economic news.

The Canadian dollar faded 0.19 of a cent to 92.05 cents US.

Investors were cautious as the U.S. Federal Reserve began a two-day meeting that's expected to produce an update on how the central bank believes the world's largest economy is faring.

That will come on the heels of a revised growth forecast by the International Monetary Fund which now thinks the U.S. economy will grow at a modest two per cent this year, down from its earlier prediction of 2.7 per cent. Last week, the World Bank also adjusted its estimates, slashing its 2014 global growth forecast to 2.8 per cent from 3.2 per cent, blaming the long winter and the political crisis in Ukraine.

The Fed will also be taking in the latest data that showed the cost of living is rising in the United States.

The U.S. Labor Department reported Tuesday that consumer prices rose 0.4 per cent in May, the biggest one-month jump since a 0.6 per cent increase in February 2013, pushed up by higher food and gasoline prices and the largest increase in airline fares 15 years.

Gareth Watson, vice-president of investment management and research at Richardson GMP Ltd., said signs of a steadily recovering U.S. economy should mean the greenback will strengthen against the Canadian dollar. But that has not been the case because of the unfolding situation in Iraq.

"In the short term, we can't ignore the fact that we don't know how the Middle East story is going to play out," he said. "It's not going away for a long time... (and it'll be) keeping things unstable, keeping oil prices high. If it doesn't brush over, we will see upward pressure on the loonie if oil prices climb higher."

Meanwhile, the price of oil fell as the July crude contract subtracted 54 cents to US$106.36 a barrel after gains last week prompted by the Iraqi situation and fears of possible disruption in global oil supplies.

About 300 U.S. soldiers are being moved into position to protect the U.S. Embassy and other American interests as President Barack Obama weighs options for dealing with the al-Qaida inspired militants who have captured a vast swath of the northern Iraq.

While the loss of territory to the militants has had no immediate effect on oil exports, now at more than three million barrels a day, it adds to concerns over security and the country's plans to expand oil production.

Despite the conflict, traders are not flocking to the other commodities.

August gold bullion lost $3.30 to US$1,272 an ounce, while July copper was up a penny at US$3.06 a pound.

Follow @LindaNguyenTO on Twitter.

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