Loonie gains half a cent after Fed statement; attention turns to CPI figures

Photo: The Canadian Press. All rights reserved.

A Canadian dollar coin, or loonie, and an American dollar are balanced on a scale in Quebec City, on April 7, 2010. THE CANADIAN PRESS/Jacques Boissinot

TORONTO - The Canadian dollar rallied Thursday in the wake of the news that the U.S. Federal Reserve remains in no hurry to raise its record-low interest rates.

The loonie jumped 0.47 of a cent to 91.35 cents US.

The U.S. central bank reassured markets Wednesday that it plans on keeping its key interest rate near zero for a considerable period as it continues to monitor the health of the U.S. economy. The Fed said it will hold the rate as long as inflation remains under control and until it sees consistent gains in wage growth, long-term unemployment and other gauges of the job market.

Most economists expected the Fed to keep rates at current levels until mid-2015, although recent improvements in the U.S. economy has encouraged speculation that it might move to raise them sooner.

The strength in the loonie is Fed-related, said Colin Cieszynski, a market analyst at CMC Markets.

"There was a big spike in U.S. dollar following the Fed announcement, now we're just seeing a normal correction," he said. "The U.S. dollar is starting to drop back against other currencies. The U.S. dollar was getting overbought."

Meanwhile, for the Canadian dollar, the most important economic news still to come this week will be the latest reading on the consumer price index, due Friday.

Overseas, there continues to be uncertainty as Scots headed to the polls Thursday to vote on whether they want to separate from the United Kingdom. Polls have indicated that the result is too close to call. But a Yes vote would result in complications for currency markets and Scotland's membership in the European Union and NATO.

Meanwhile, commodity markets were all lower, as the October crude contract on the New York Mercantile Exchange dropped $1.35 to US$93.07 a barrel.

December gold bullion fell $9 to US$1,226.90 an ounce, while December copper dipped five cents to US$3.09 a pound.

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