In early deals on Wednesday, the Canadian dollar slumped to a 2-week low against the US currency as the crude oil prices fell over 2% toward $48 a barrel in Asian trading today, dragged down by a bearish industry report showing a larger-than-expected rise in U.S. crude stocks and a slew of weak economic data. The loonie also tumbled to a 9-day low against the euro and showed modest weakness against the yen.

U.S. crude for May delivery fell $1.20 to $48.46 by 10:23 p.m. ET, erasing much of Tuesday's 2.6 percent gain that lifted the contract to $49.66 a barrel. London Brent crude fell $1.03 to $48.20.

Crude futures rose yesterday in tandem with Wall Street, which was headed for its best month in six years, despite gloomy data showing U.S. house prices had plunged at a record pace of 19 percent in January, while consumer confidence held just above record lows in March.

But bearish numbers from the American Petroleum Institute showing crude stocks rose by a greater-than-expected 3.3 million barrels to 357.8 million barrels in the week to March 27, were encouraging investors to take profit.

Canada's dollar weakened for the third straight quarter as stocks fell for the period and investors' appetite for risk shrank amid speculation the recession is deepening.

Oil prices have tumbled nearly $100 from the record high struck last July as the global economic crisis slashed global oil demand for the first time in 25 years.

Poor business confidence from Japan, the world's No. 3 energy consumer, also pointed to a bleak near-term demand outlook for oil. Japanese business confidence tumbled at its fastest pace ever in the first quarter to the worst on record, the Bank of Japan's tankan corporate survey showed today.

Compounding the gloom was a forecast by Organization for Economic Co-operation and Development that world trade was in free fall and should decline by 13.2 percent in 2009 as the economic crisis cuts demand across the globe.

Demand collapsed as Japan, Europe and the U.S. grappled with recessions. Global growth is likely to shrink for the first time since World War II and trade may decline the most in 80 years, the World Bank forecast this month. The CRB's peak in July marked the end of a bull market that began in 2001.

The Organization of Petroleum Exporting Countries, accounting for about 40 percent of world supply, responded by agreeing to three output cuts since late last year.

But recent rally in global stock markets and production cuts by the Organization of the Petroleum Exporting Countries has helped lift oil prices by 9.5 percent in the first quarter of 2009, snapping two consecutive quarters of double-digit declines.

Canada is on track to post one of the worst economic performances in its history in the first quarter, likely pushing the central bank to go beyond interest rate cuts in its efforts to combat the recession.

Statistics Canada said yesterday that shrinking manufacturing production, particularly in autos, led gross domestic product to shrink 0.7 percent in January from December. That made for a year-on-year downturn of 2.4 percent, the steepest fall since the last recession in the early 1990s. The steepest quarterly decline on record for Canada was a 5.9 percent decline in the first quarter of 1991.

Bank of Canada Governor Mark Carney is confident that stimulus measures taken by governments around the world will succeed in restoring growth. Carney said the central bank's forecasts for the Canadian economy are realistic but reiterated that they will be adjusted in an April 23 report.

The bank's forecast of a return to economic growth in the third quarter of this year and annual growth of 3.8 percent in 2010 are widely seen as overly optimistic. He had previously hinted that those will be revised down.

As expected, the Bank of Canada trimmed its interest rate by 50bps to a record low of 0.5% in March. With the key interest rate nearing zero, policymakers also kicked open the door to using policies beyond rate cuts to help stem the tide of economic weakness.

In its April Monetary Policy Report, the Bank will outline a framework for the possible use of such measures including credit and quantitative easing.

The Bank's decision to lower its policy rate by 50 basis points in March brings the cumulative monetary policy easing to 400 basis points since December 2007.

During early deals on Wednesday, the Canadian dollar fell to 1.2719 against the US currency. This set the lowest point for the loonie since March 18. If the Canadian dollar weakens further, it may test support around the 1.296 level. At yesterday's close, the greenback-loonie pair was quoted at 1.2598.

Canada's currency, called the loonie, depreciated 3% against the U.S. dollar in the first quarter of 2009, which ended yesterday, compared to a 13% loss in the fourth quarter of 2008 ending December 31.

Extending last year's 20% slide, the Canadian dollar tumbled to a 4 1/2 -year low of 1.3066 against the greenback on March 09, 2009. Although the loonie gained 7% thereafter, it pulled back again after reaching a 5-week high of 1.2194 on March 19. Since then, the Canadian currency has lost 4%.

The loonie tumbled a record 20% in 2008 as the U.S. economy, destination of more than three-quarters of Canada's exports, deteriorated and the price of commodities such as crude oil declined amid the weakening global economy. Crude oil accounts for about a tenth of Canada's export revenue.

Against the European currency, the Canadian dollar dropped to a 9-day low of 1.6785 in early trading on Wednesday. The next downside target level for the loonie is seen at 1.687. The euro-loonie pair was worth 1.6699 at yesterday's close.

The Canadian dollar plunged to an 11-week low of 1.6976 against the euro on March 20. Thereafter, the loonie appreciated 3% and reached a 2-week high of 1.6410 in early Asian trading on March 30. However, the loonie pared its gains in the European session on the same day and has declined 2% thus far.

In early trading on Wednesday, the Canadian dollar slipped against the Japanese yen. At about 12:30 am ET, the loonie-yen pair touched 77.48, down from yesterday's close of 78.59. The near term support level for the Canadian currency is seen at 76.8.

In economic news, Japanese sentiment among large manufacturers plummeted at a record rate in the first quarter of 2009, posting a diffusion index score of -58, the Bank of Japan's Tankan Survey revealed today. That was worse than analyst expectations for -55 following a score of -24 in the previous quarter.

It was the sixth straight quarter of decline, and the fall of 34 points from the previous survey in December marked the largest fall on record. It was also worse than the previous record low of -57 in June 1975. However, the large manufacturers' outlook for the June quarter posted a mild recovery, coming in at -51.

Thus far, the Canadian dollar has dropped 4% against the yen from a 4-month high of 80.73 hit on March 24.

The Canadian dollar that strengthened against the aussie in early Wednesday Asian trading reversed direction after hitting a high of 0.8688 at 8:30 pm ET. At present, the aussie-loonie pair is worth 0.8738, compared to Tuesday's closing value of 0.8713. On the downside, the loonie may likely target a new multi-month low of 0.88, if it slides further.

The Aussie slipped earlier today after the Australian Bureau of Statistics' or ABS data showed that retail sales in Australia dropped 2.0% in February on month, marking the largest monthly decline since July 2000.

Looking ahead, the Euro-zone unemployment report for February is due for release. The jobless rate is expected to rise to 8.3% in February from 8.2% last month.

Turning to the US, the ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 am ET.

The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 1.6% decline in spending for February.

At the same time, the results of the manufacturing survey of the Institute for Supply Management and the pending home sales are due out. Economists expect the ISM index to show a reading of 36 for March. The pending home sales is likely to show a 2% decline for February.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 am ET.

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