Canadian dollar eases ahead of Fed statement

Wed Jan 28, 2015 9:57am EST
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By Solarina Ho

TORONTO (Reuters) - The Canadian dollar was weaker against the greenback on Wednesday as oil prices retreated and as investors looked ahead to a U.S. Federal Reserve policy statement later in the day.

The U.S. dollar recouped some of the previous session's losses, climbing against a basket of currencies, but gains were tempered as investors speculated the Fed could take a more dovish stance on raising interest rates.

The U.S. central bank's Federal Open Market Committee (FOMC) is scheduled to release its statement at the end of a two-day meeting on Wednesday. It has been widely expected to start raising rates by around midyear, even as central banks globally have loosened monetary policy to spur sluggish growth.

"Certainly we've had a divergence globally," said Scotiabank chief currency strategist Camilla Sutton, adding that markets will be looking out for the use of the words "patience" and "considerable time" in the Fed's language, which might signal it is in no rush to hike rates.

"The combination of having disinflationary pressure building as well as a shift in the voting members of the FOMC board to a slightly more dovish bias have all played into market psychology, but all in all, we're likely to see no major shift in policy stance from the Fed."

At 9:26 a.m. (1426 GMT), the Canadian dollar CAD=D4 was at C$1.2435 to the greenback, or 80.42 U.S. cents, softer than Tuesday's close of C$1.2404, or 80.62 U.S. cents.

The currency has stabilized somewhat after last week's hefty losses, though analysts agree that the overall trend of a weaker Canadian dollar remains firmly entrenched.

Canada is a major oil producer and crude prices have been a key driver of the loonie in recent months. They slipped on Wednesday following an industry report that said U.S. crude stocks had the biggest rise on record last week. [O/R]   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015.  REUTERS/Mark Blinch