Federal Reserve’s Decision weakens the ‘loonie’

03 August 2012 16:15 - Phoebe Robinson

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Federal Reserve’s Decision weakens the ‘loonie’

The Canadian dollar fell against the USD after the Federal Reserve’s announcement to give the economy additional support; disappointed investors are waiting for more distinct signs of further monetary easing.  The Federal Open Market Committee emphasised in a statement it will keep its interest rates very low till at least towards the end of 2014 and that they will provide supplementary accommodation as needed. It had been thought by investors that the central bank might signal a third round of asset purchases under quantitative easing.

The ‘loonie’ fell 0.3% to C$1.0055 per U.S dollar at 5pm in Toronto. It earlier had risen to almost its strongest point since May. At the moment one Canadian dollar buys 99.45 cents. The S&Ps 500 index swung to a 0.3% decline after adding 0.4%.

The Canadian dollar has appreciated 2.5% this year against nine major counterparts which have been tracked by Bloomberg Correlation-weighted indexes on speculation policy makers will extend measures to stimulate economic growth as evidence is increasing that the global recovery is coming to a standstill.  Only the resource-linked dollars such as the Australian dollar are up and have done better in 2012.

There have been recent advancements in commodity currencies which have occurred amid a 10% fall this year in crude oil, which is Canada’s largest export, and a 2% drop in the in the Thomas Reuters Index of 19 commodities. Furthermore Canadian government bonds fell for the first time in three days sending the benchmark 10-year yield up three basis points, or 0.03% point, to 1.71%. The price of 2.75% securities due in June 2022 dropped 31 cents to C$109.40. 

The ‘loonie’ and the euro have levelled gains today after the president of the EBC shouldn’t exceed its mandate. Tomorrow interest-rate decision is the first since president Mario Draghi pledged to do whatever it takes to defend the euro.  

“The markets have gotten ahead of themselves in thinking the Fed can do or will do more today,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, in a interview before the Fed’s statement. “We’re a little bit negative in the sense of the implications for markets because we really don’t think the Fed or the ECB can or will do much to satisfy the kind of expectations that are built up regarding these meetings.”

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