C$ sags as greenback gains after Fed

Wed Jan 27, 2010 4:52pm EST
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By Jennifer Kwan

TORONTO (Reuters) - The Canadian dollar softened against the U.S. dollar on Wednesday as the greenback gained after the U.S. Federal Reserve kept interest rates near zero and was slightly more optimistic about the U.S. economy.

The U.S. dollar rose to a six-month high against the euro after the event. And, while the U.S. central bank said it would keep interest rates low for some time yet, a dissenting vote from one official suggested pressure was building for a tighter monetary policy.

"The (Federal Open Market Committee) was slightly more hawkish than some had expected so that helped the U.S. dollar a little bit," said Camilla Sutton, currency strategist Scotia Capital. "Generally, we're having a U.S. dollar positive day."

The Canadian dollar finished at C$1.0647 to the U.S. dollar, or 93.92 U.S. cents, down slightly from Tuesday's finish at C$1.0625 to the U.S. dollar, or 94.12 U.S. cents.

While the policy statement from the Fed was a key factor influencing markets, Sutton said the Canadian dollar was also under pressure due to broader concerns about the pace of global economic growth.

"I think it's more a story of risk aversion. Overall, the U.S. dollar has gotten a little bit better bid as risk aversion has come into the market and there's some fears about global growth and the impact of tighter policy in China," she said.

"That's probably the main driver and that's hurting commodities and the Canadian dollar."

The price for oil, a key Canadian export, slipped below $74 a barrel, pressured by rising U.S. inventories due to soft demand, while gold prices were also weaker.   Continued...