The Canadian dollar continued to fall Friday, ahead of a Federal Reserve meeting next week that could augur a change in interest rates.

The loonie closed down 0.18 of a cent to 90.14 cents US on Friday and has dropped one and a half cents in the last week.

The Canadian dollar fell almost a full U.S. cent on Thursday, as weaker-than-expected Chinese inflation suggested a slowdown in economic growth in China.

China has been a key market for Canadian commodities for the past five years as U.S. and EU economies languished. But China’s economy is soon to be driven mainly by domestic demand, rather than exports, and that has been a tough transition that has reduced its need for Canadian wood and minerals.

Rush to U.S. greenback

Investors were also moving to take up the U.S. dollar ahead of next week’s interest rate announcement for the Fed. U.S. labour markets are improving and manufacturing is on the rebound, both indications that Fed chair Janet Yellen may be prepared to give a clear signal on when rates could rise.

Traders are also risk-averse in the current geopolitical climate, with the European Union and the U.S. bringing in another set of sanctions against Russia today.

The sanctions, designed to punish Russia for its involvement in Ukraine, restrict access to financing in the west to top Russian banks, defence and energy firms. EU assets of senior politicians and rebel leaders have also been frozen.

The Canadian dollar is vulnerable to crude oil prices – as it is our status as an oil producer that has kept the loonie high in the past few years.

Oil prices moved higher today with the October crude contract in New York up six cents to $92.89 a barrel. They were at a 16-month low of $90 US a barrel during Thursday's session close after a U.S. Energy Information Administration report showing a boom in U.S. production.

Exporters could benefit

Gasoline prices have also dropped, falling to $3.42 a U.S. gallon on Thursday, down 3.8 per cent from the same period in 2013.

The U.S. oil boom has reduced demand for Alberta crude, which is difficult to get to market. A falling dollar doesn’t help oil exports, as oil is priced in U.S. dollars.

A lower Canadian dollar is an advantage to some Canadian exporters, who hope to take advantage of the U.S. economic recovery to boost their output.

Finance Minister Joe Oliver has been forecasting a bump in Canadian exports for months as a result of improved conditions in the U.S., but so far, there is not much sign of it. The hope is that growing exports would boost hiring.

For Canadian consumers, a low dollar is not good news. Their travel dollars don’t go as far and cross-border shopping becomes less attractive.

Imported produce also may become more expensive, though the impact of that change won’t be felt until later in the winter, as Canadian market gardens are currently providing most of our fresh food.