Loonie Halts Decline as Fed Meets

Tradervox.com (Dublin) - The loonie halted a three-day decline on speculation the currency had declined too far too quickly. The loonie’s turn has been supported by speculation that Federal Reserve will maintain monetary stimulus that may devalue the US dollar. The currency fell the most last week since June after the Bank of Canada dropped a bias toward higher interest rates it had included in every policy statement for more than a year, even as it held the benchmark rate at 1 percent. The Fed, which starts a two-day policy meeting tomorrow, is unlikely to begin tapering the bond-buying program its used to lower interest rates and stimulate the economy, according to the median estimate of economist survey.

According to Scot Smith, a market analyst in Calgary at Cambridge Mercantile Group, last week’s selloff was instigated by the Bank of Canada rate announcement. He noted that there is consolidation as traders assess the message the Bank of Canada issued.

The loonie was little changed at C$1.0445 per U.S. dollar at 5 p.m. One loonie buys 95.74 cents. Canada’s benchmark 10-year government bond was little changed, yielding 2.43 percent at a price of C$92.11.  Futures for crude oil, Canada’s largest export, rose 0.7 percent to $98.51 per barrel and the Standard & Poor’s 500 Index of U.S. stocks rose 0.1 percent.

According to Eimear Dally, a London-based currency strategist at Monex Europe Ltd, the Canadian dollar is consolidating its losses. He predicted that the market will probably re-price the risk of tapering in the US. Daly said there is no chance of tapering at the rate announcement Oct. 30, though she expects stronger data in coming months to boost bets for earlier tapering.

The Fed will begin reducing its $85 billion in monthly bond purchases in March, according to the median estimate of a survey of 35 economists conducted Oct. 17-18.

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