Oil hits new low, dragging Canadian dollar close to 76 cents

The Canadian dollar took a double hit on Tuesday from devaluation of the Chinese currency and a fresh six-month low for oil, which slipped briefly below $43.

The loonie was at 76.25cents US at the close, down three quarters of a cent from Monday. It hit a low of 76.08 earlier in the day.

West Texas Intermediate crude sank to $42.91 US a barrel, but ended the day at $43.16, a loss of $1.80 or fourper cent on the day. WTI is down 25 per cent in the past month.

• Oil outlook grim amid continued supply glut

China's overnight devaluation of the yuan hurt the currencies of countries such as Australia, New Zealand and Canada which have found a ready market for commodities in China.

"If you look at the China market we are the second biggest partner in trade between China and Canada just after the United States," said Luke Chan of the DeGroote School of Business in Hamilton, Ont.

Not only do Canadian goods stand to get more expensive in China, and probably sell less, but Chinese investment in Canada could also be affected, Chan said.

Boost exports

China hopes to boost exports by devaluing its currency and making its goods cheaper.

But the move hit commodities prices around the world, amid fears the Chinese economy is facing a sustained slowdown.

"Fears of a prolonged decline in demand by the world's second largest economy caused oil and other commodity prices to slump, another blow to the Canadian dollar," Sherry Cooper, chief economist at Dominion Lending Centres, said in a note to investors.

The hit to commodity prices depressed WTI oil to its lowest point of the year.Brent crude, the international contract traded in London, fell a more modest$1.22 to $49.16US a barrel.

Mark Grant, of Southwest Securities, pointed to an increase in production by the Organization of Petroleum Exporting Countries, adding to the global oversupply of oil.

"We got OPEC's latest monthly production numbers this morning, and they showed that production surged to a three-year high in July," he said.

The cartel produced 31.5 million barrels a day in July, 1.5 million barrels more thanthe ceiling it agreed to just a month earlier, with additional oil coming from Iran, Iraq and Saudi Arabia.

OPEC had hoped keeping its production high would pull down prices enough to discourage U.S. shale production, but the U.S. keeps producing, aided by new shale technologies,meaning it can handle lower prices.

The falling oil pricewill put further pressure on the Canadian economy, which is struggling to throw off the recessionary effects oflow oil.

The oil and gas sector has pulled back on investment in each of the last three quarters, resulting in fewer jobs and slower growth in the oil-producing regions.

And while the low dollar may have helped Canadian exports rebound in June, the Canadian economy contracted for the first five months of the year.