C$ closes lower after U.S. Fed minutes

Wed Jul 14, 2010 4:54pm EDT
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By Jennifer Kwan

TORONTO (Reuters) - The Canadian dollar ended lower against its U.S. counterpart on Wednesday after a cautious assessment from the U.S. Federal Reserve fueled concern about economic recovery.

In the minutes of a policy meeting released on Wednesday afternoon, the U.S. central bank sparked concern by suggesting additional measures may be needed if an already softening economic outlook were to take a turn for the worse.

The assessment sparked jitters on financial markets and helped to push down the price of oil, a key Canadian export, as well as pressure U.S. stocks, typically a barometer of risk appetite.

"I sense that the dovish tone may have caused a bit of concern on the part of investors, so we're seeing now more of a risk aversion trade with Treasuries higher and risk assets such as the Canadian dollar being sold off," said Millan Mulraine, economics strategist at TD Securities.

"The fact that they thought about (additional measures to boost the economy), injected it as part of the discussion ... does suggest that there perhaps might be a chance they can do it if economic conditions aren't sufficient."

Also weighing on investor sentiment was weak U.S. retail sales data for June, the latest in a series of reports to suggest U.S. economic recovery has slowed in the past few months.

The Canadian dollar finished at C$1.0341 to the U.S. dollar, or 96.70 U.S. cents, backing off a session high of C$1.0286 to the U.S. dollar, or 97.22 U.S. cents. The currency finished slightly down from Tuesday's close of C$1.0337 to the U.S. dollar, or 96.74 U.S. cents.

The next key event for the market will be the Bank of Canada's interest rate announcement on July 20, and market expectations lean toward a rate increase, said Sacha Tihanyi, currency strategist at Scotia Capital.   Continued...