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Loonie lower, greenback grows stronger

The Canadian dollar drifted lower Wednesday morning amid general U.S. dollar strength.

The loonie was down 0.07 of a cent to 91.27 cents US to levels last seen in September 2009.

The new year is only two weeks old and the loonie has already fallen 3.1 per cent, making it the worst performing primary currency.

The reasons for the decline are many. One is that the greenback has gained in value as the Federal Reserve starts to back away from its massive monthly bond purchases.

But recent Canadian economic data has disappointed markets, particularly reports last week showing a rising trade deficit and December employment data showing the loss of 46,000 jobs.

The Bank of Canada's dovish stand on interest rates has also contributed to the fall and traders are particularly looking to what the central bank has to say next week in its next scheduled announcement on interest rates. Governor Stephen Poloz has signalled the bank is in no rush to raise rates and analysts aren't looking for a hike until next year.

In fact, some are looking for the bank to cut rates. Mark Chandler, Head of Canadian FIC Strategy at RBC Dominion Securities observes that "there is a significant minority of observers believing that a shift towards an easing bias is in the cards next week and, unless the notion is dispelled, it is hard to imagine the Canadian dollar reversing some of its recent losses."

Traders also awaited the afternoon release of the latest take on the economy by the U.S. Federal Reserve. The Fed has already started to taper its massive monthly bond purchases to $75 billion, a decrease of $10 billion a month, and made further tapering contingent on economic performance, particularly jobs data.

The Canadian Press


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