Loonie lower despite strong manufacturing data; traders look to Fed decision

TORONTO - The Canadian dollar closed lower Tuesday as traders hope for clarity on what the U.S. Federal Reserve may decide to do about cutting back on asset purchases.

The loonie was down 0.21 of a cent at 94.25 cents US amid a strengthening greenback as a two-day Fed meeting got underway Tuesday.

Traders weighed the odds of the Fed announcing Wednesday that it will start to taper bond purchases, which have been at US$85 billion a month. This third episode of quantitative easing by the Fed has underpinned a strong rally in many stock markets while keeping long-term rates low.

Opinion is split, with many analysts believing incoming chair Janet Yellen may hold off until March, allowing the Fed to collect more data pointing to a steadily improving economic climate and particularly job creation.

The drop in the loonie came amid data showing that Canadian manufacturing sales registered a healthy increase in October and hit a 17-month high.

Statistics Canada reported that sales increased by one per cent in October to $50.1 billion. Economists had expected a decline of 0.3 per cent.

The agency said that with this gain, sales reached their highest level since May 2012. The sales increase in October was mostly caused by higher sales in the food industry. Sales also rose notably in the chemical industry.

In the United States, lower gasoline costs kept overall U.S. consumer prices unchanged in November.

That showing followed a 0.1 per cent decline in October.

Commodity prices retreated amid concerns that economies would falter if the Fed tapers.

The January crude contract on the New York Mercantile Exchange slipped 26 cents to US$97.22 a barrel.

March copper was a cent lower at US$3.32 a pound while February gold bullion fell $14.30 to US$1,230.10 an ounce.