Canadian dollar up, traders look to Fed for clarity on cutting back on stimulus

Canadian dollars (loonies) are pictured in Vancouver, Sept. 22, 2011. THE CANADIAN PRESS/Jonathan Hayward

TORONTO - The Canadian dollar moved higher Wednesday as traders awaited a mid-afternoon announcement by the U.S. Federal Reserve that will likely clarify what the central bank will do to further wrap up its key stimulus program.

The loonie gained 0.14 of a cent to 89.78 cents US after closing at a fresh 4 1/2 year low on Tuesday.

There was some relief that emerging markets have moved to shore up their currencies.

Markets have generally avoided risk since last week after investors grew worried about growth in China and other emerging markets.

Chinese data showed a contraction in manufacturing while currencies in countries including India and Turkey came under pressure as investors wondered how they'll be affected by the U.S. Federal Reserve's policy to reduce its monetary stimulus.

The Fed’s massive bond purchases over the last few years has resulted in a stream of cheap money into those markets. But now the central bank is cutting back on those asset purchases.

Nerves were smoothed somewhat by the Turkish central bank’s aggressive interest rate hike to stabilize its currency and a rate hike in India while China injected funds into its banking system.

Meanwhile, the Fed issues its statement on rates and the economy at 2 p.m. EST. The central bank is widely expected to announce it is further cutting back on its key stimulus measure, the monthly purchase of bonds, a move that had kept long term rates low and encouraged a rally on equity markets.

The Fed has already tapered its asset purchases by $10 billion a month to $75 billion and is expected to announce it is trimming by a further $10 billion a month.

On the commodity markets March crude on the New York Mercantile Exchange slipped 23 cents to US$97.18 a barrel.

March copper was unchanged at US$3.25 a pound while February gold rose $12.80 to US$1,263.60 an ounce.


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