Loonie lower, greenback rises on indications Fed won't cut stimulus until 2014

TORONTO – The Canadian dollar closed lower Wednesday as the U.S. dollar strengthened on the U.S. Federal Reserve’s statement that a weak economy continues to require support.

It said it won’t be cutting back on its US$85 billion of monthly bond purchases, which have kept long-term rates low and encouraged a strong stock market rally.

The loonie lost 0.13 of a cent to 95.38 cents US.

The decision is a sharp reversal from the Fed’s last meeting six weeks ago when it was generally thought the central bank considered the economy strong enough to begin cutting back.

Since then, a 16-day partial government shutdown shaved an estimated $25 billion from economic growth this quarter. And a batch of tepid economic data pointed to a still-subpar economy, all reasons for the Federal Reserve to leave tapering until 2014.

Many analysts expect that the Federal Reserve won’t cut back on its key stimulus of asset purchases until next year.

Traders also looked to the release of economic growth figures for August. Statistics Canada is expected to report Thursday that the economy grew by 0.2 per cent during the month.

Meanwhile, data in the U.S. released Wednesday showed inflation rising modestly during September. The Consumer Price Index grew by 0.2 per cent during the month following a 0.1 per cent rise in August.

Commodity prices were mixed with dropped December crude on the New York Mercantile Exchange down $1.43 to US$96.77 a barrel amid data showing U.S. inventories rose by a greater than expected 4.1 million barrels last week.

December copper jumped five cents to US$3.33 a pound while December bullion gained $3.80 an ounce to US$1,349.30 an ounce.