Loonie lower, greenback rises on expectations Fed set to taper bond purchases
Canadian dollars are pictured in Vancouver, B.C. in this file photo. (Jonathan Hayward / THE CANADIAN PRESS)
Published Tuesday, August 20, 2013 10:00AM EDT
TORONTO -- The Canadian dollar was lower Tuesday while the American currency strengthened on continuing speculation about what the Federal Reserve may decide to do about cutting back on its bond purchasing program.
The loonie dropped 0.42 of a cent to 96.27 cents US.
Traders looked ahead to Wednesday and the release of the minutes from the Fed's most recent meeting at the end of last month. A largely positive run of economic data has persuaded many investors that the central bank will start to taper its monthly bond purchases of US$85 billion, which have kept long term rates low and encouraged a sharp runup on many markets this year. They think the Fed could start winding up its third instalment of quantitative easing as early as September.
The prospect of the Fed tapering its massive bond purchases has sent U.S. bond yields higher. The benchmark U.S. 10-year Treasury was off 0.05 of a point from late Monday at 2.83 per cent. Bond yields have surged well over a full percentage point since Fed chairman Ben Bernanke first mentioned the possibility of the Fed cutting back in May.
"The recent market shift is on the back of Fed policy fears and the economic impact of rising bond yields globally," said Scotia Capital chief currency strategist Camilla Sutton.
"In this environment that combines rising risk aversion, tightening Fed policy and relative growth outlooks that favour the U.S., we expect the U.S. dollar to rally."
Speculation over Fed intentions pushed the September crude contract on the New York Mercantile Exchange down 99 cents to US$106.11 a barrel.
Copper was unchanged at US$3.33 a pound while gold dipped a dime to US$1,365.60 an ounce.
Later in the week, traders will take in the release of Canadian retail sales data for June on Thursday and inflation data for July on Friday.