Loonie falls amid growing economic worries

The Canadian dollar fell to a seven-month low, dropping below 99 cents US for the first time since July last year.

The Canadian dollar fell to a seven-month low, dropping below 99 cents US for the first time since July.

Many analysts are worried about the impact of the mandatory spending cuts in the U.S. that are scheduled to take effect at the end of February. The so-called "sequestration" cuts would chop spending by more than $1 trillion.

Analysts and currency traders aren't just concerned about forces external to Canada, however.

The Canadian housing market is becoming a big cause for concern, says Dennis Gartman, publisher of the widely followed investment report the Gartman Letter. 

The Bank of Canada, as well as the IMF, have mentioned the housing market as a possible risk to the Canadian economy, which is causing traders to unload the loonie.

In a note to investors, Scotia Economics said it expects the dollar to fall in the near term because of declines in the housing market and the impact of sequestration cuts in the U.S.

Housing isn't the only problem for the Canadian economy, however. New Statistics Canada reports show weaker economic performance at the end of 2012 than previously thought.

The agency showed wholesale sales declined by 0.9 per cent in December, a drop that was deeper than expected. Another report showed foreign investors dropped their holdings of Canadian securities by $1.9 billion in the same month, suggesting lower demand for the Canadian dollar.

It's the latest in a slew of poor economic data to emerge in the past two weeks, encompassing virtually every aspect of the Canadian economy.

Last week, the agency reported manufacturing sales fell by over three per cent in December, the sharpest monthly drop since the height of the recession in 2009. Additionally, the Canadian real estate association said home sales were down by five per cent in January.

Housing starts had dropped sharply a week earlier, the same day Statistics Canada said the economy shed 22,000 jobs in January, the first monthly decline since midway through 2012.

The continuing weakness in the Canadian economy is increasing focus on this week's release of inflation numbers for January.