Loonie down, U.S. dollar up , traders hope for stimulus clarity from Fed meeting

TORONTO – The Canadian dollar closed lower Tuesday while the greenback advanced as the U.S. Federal Reserve started its scheduled two-day meeting on interest rates.

The loonie was down 0.32 of a cent at 97.94 cents US.

Traders hope the meeting of Fed policy-makers and a news conference Wednesday afternoon by Fed chairman Ben Bernanke will provide clarity on whether the U.S. central bank thinks that it can start to slowly let up on its program of bond purchases, which has been aimed at keeping interest rates and yields low.

The program, involving the purchase of US$85 billion of bonds every month, has also helped fuel a strong rally on stock markets.

Markets have been volatile since late May when Fed chairman Ben Bernanke first mooted the possibility of the central bank tapering its bond purchases.

On the economic front, traders also looked to data showing that U.S. builders began construction on more single-family homes and apartments in May.

The U.S. Commerce Department says builders increased housing starts 6.8 per cent last month to a seasonally adjusted annual rate of 914,000, below expectations of 950,000. That followed a 14.8 per cent decline in April and a five-year high in March, when the U.S. was on a seasonally adjusted pace to have more than one million housing starts this year.

Applications for building permits fell 3.1 per cent in May to a seasonally adjusted 974,000. That’s still close to the five-year high hit in April.

Other data showed that the consumer price index ticked up a seasonally adjusted 0.1 per cent last month, only the second increase in seven months. Consumer prices fell 0.4 per cent in April in the largest decline in four years. In the past 12 months, prices have increased 1.4 per cent.

Commodity prices were mixed with the July crude contract on the New York Mercantile Exchange up 67 cents at US$98.44 a barrel.

July copper fell four cents to US$3.15 a pound while August bullion gave back $16.20 to US$1,366.90 an ounce.