Canadian dollar up slightly ahead of expected Fed stimulus announcement

TORONTO – The Canadian dollar was slightly higher Tuesday morning while the American currency weakened ahead of an expected announcement of further economic stimulus by the U.S. Federal Reserve. Such a move would involve the Fed printing additional money to buy up more bonds.

The loonie added 0.01 of a cent to 101.33 cents US.

Economists expect that the Fed will announce at the end of its two-day meeting Wednesday that it will begin buying US$40 million of long-term treasury securities each month.

This would be on top of an existing plan announced in September that involves the Fed buying $40 billion per month in mortgage-backed securities.

The Fed’s US$400-billion stimulus program know as Operation Twist is set to expire after 2012. It involved the Fed buying $400-billion of longer-term Treasuries and simultaneously selling some of the shorter-dated issues it already held in order to bring down long-term interest rates.

Traders also took in data suggesting Germany will be able to avoid slipping into recession as an index of investor optimism rose more than expected in December.

The ZEW indicator of economic sentiment rose to plus 6.9 points, from minus 15.7 in November. Markets had expected the index to rise only to minus 11.5. Germany’s economy grew a modest 0.2 per cent in the third quarter.

Commodities were mixed as the January crude contract on the New York Mercantile Exchange gained 68 cents to US$86.24 a barrel.

Copper prices gave up some of Monday’s four-cent rise as the March contract dipped a penny to US$3.70 a pound.

February gold faded $1.50 to US$1,712.90 an ounce.