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Loonie closes higher following steep loss in wake of Fed tapering decision

TORONTO - The Canadian dollar erased early losses to close higher Thursday, clawing back some of the substantial loss it suffered after the Fed moved to start winding up a key stimulus program.

The loonie was up 0.21 of a cent at 93.76 cents US following a tumble of almost three-quarters of a cent Wednesday after the Federal Reserve's announcement that it would cut back on bond purchases sent the U.S. currency higher. The loonie had drifted below 93.3 cents US earlier Thursday to a 3 1/2-year low.

The Fed said it was cutting its monthly bond and asset purchases to $75 billion starting in January, down $10 billion from where they have been. The U.S. central bank said further cuts would depend on economic data, particularly jobless levels and inflation.

The Fed also emphasized that short-term rates aren't going up any time soon.

The tapering of asset purchases will be the first step toward winding down a program that has been in place since the 2008 financial crisis.

The quantitative easing kept long-term rates low and supported strong gains on many equity markets this year.

U.S. bond prices fell, sending yields higher. The yield on the 10-year Treasury note rose to 2.94 per cent, up from 2.87 per cent prior to the Fed’s announcement.

On the commodity markets, bullion prices resumed sliding after the Fed move. QE had supported gold prices because of inflationary fears. But inflation is tame in many countries and data out earlier this week showed the U.S. consumer price index rising at an annual rate of only 1.2 per cent, significantly below the Fed’s inflation target of two per cent.

The February gold contract on the New York Mercantile Exchange fell $41.40 to US$1,193.60 an ounce, its lowest close since Aug. 3, 2010. Gold prices are down 29 per cent so far this year

Elsewhere, January crude gained 97 cents to US$98.77 a barrel while March copper slipped two cents to US$3.30 a pound.

The Canadian Press

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