OTTAWA (AP) – The Canadian dollar suffered one of its worst days on record in relation to the American greenback on Monday, tumbling almost three cents, amid a reversal of several forces that had pushed it to record highs last week.

With commodities, particularly oil and gold, losing their luster and the U.S. dollar suddenly flexing some muscle, the loonie’s orderly retreat from last week’s brief flirtation with US $1.10 turned into a rout in international markets on Monday.

Canada’s banks were closed Monday for the Remembrance Day holiday, so there was no official trading of the dollar in Toronto. At late afternoon on international markets, the loonie was at 103.09 cents US, down from Friday’s close of 106.7 cents.

But analysts were far from writing off the loonie yet, many attributing Monday’s selloff to unique and temporary factors.

“We’re not ready to declare an end to the Canadian dollar rally,” said Matthew Strauss, the Royal Bank’s senior currency strategist. “The Canadian dollar was due for a correction because it rallied too far, too quick.”

And it got a serious correction. The dollar opened Monday down more than 1½ cents and kept on heading south, dropping 2.98 cents by late in the day. That was the biggest one-day stumble in 36 years.

Despite a general consensus, including from the government and Bank of Canada in Ottawa, that the loonie has been overpriced, many of the fundamentals responsible for it’s 25 per cent appreciation in the past year remain in place, say analysts.

Commodity prices for oil, gold, minerals and wheat – all things the world needs and Canada has in abundance – are near historic highs, the world economy is robust, the Canadian economy remains strong, and the U.S. economy, hammered by the ongoing subprime crisis, remains weak.

But in the past few days, most of these factors have bucked the longer term trend. After flirting with US $100 a barrel last week, oil was trading in the low US$94 range Monday, and bullion fell about four per cent to just above US $800 an ounce.

Bolstered by a stronger than expected trade balance report Friday, the U.S. currency staged a rally against all major currencies except the Japanese yen.

Investor newsletter writer Dennis Gartman said the yen-loonie trade is being affected by speculators who borrowed yen to make speculative bets in Canada and other high-yield assets the past month.

“The boat has been inordinately heavy with speculative buyers of Canada, Sterling, euro … and speculative sellers of the yen, and the boat’s now tipping,” he said. “This, we fear, can get very, very ugly and do so very, very quickly.”

The final related factor, said Strauss, is that the market has gotten nervous over the worsening U.S. subprime news and is becoming risk adverse, which often leads to selling commodities and commodity currencies.

In part, the loonie’s steep fall from grace since last week’s quick peak at the rarefied air of 110.3 cents US is a byproduct of having risen faster than the fundamentals warranted, said Michael Gregory, senior economist with BMO Capital Markets.

“We got awfully high, awfully fast,” said Gregory. “Once we hit $1.10, it was a signal for a lot of investors that maybe it was time to start selling.”

None too soon for many in Canada.

Monday saw more evidence that the strong loonie was cutting into corporate profits as Onex Corp. reported a $77-million third-quarter loss due to currency translation losses on U.S. cash and securities. Onex keeps its accounts in Canadian dollars but does most of its business in U.S. dollars.

As well, Canada’s merchandise trade surplus fell to a nine-year low of $2.6 billion in September, a month when the loonie hit parity with the greenback for the first time in nearly 50 years, with exports falling 2.3 per cent for the second straight month.

Few believe the early indicators of an economic slowdown are dramatic enough to persuade the Bank of Canada to lower interest rates at the next announcement date of Dec. 4, although the consensus is building the U.S. Federal Reserve Board will cut its leading rate once more on Dec. 11.

That will be good news – or bad, depending on the view – for the loonie, said Gregory.

“I think we’ll take another kick at the US$1.10 can,” he predicted.

AP-ES-11-12-07 1818EST