Loonie lower, greenback gains strength amid latest Federal Reserve speculation

TORONTO – The Canadian dollar closed down two thirds of a U.S. cent Thursday amid a fresh round of speculation that the Federal Reserve may start cutting back on its monetary stimulus early in the new year.

The loonie was down 0.67 of a cent against the U.S. dollar to 95.05 cents US.

The greenback gained against other currencies after the release of the minutes of the last Fed meeting showed that the central bank’s policy makers would likely start tapering off bond purchases in “coming months” if U.S. the job market improved further.

Fed members also weighed the possibility of slowing the US$85 billion of asset purchases even without clear evidence of a strengthening job market.

The central bank’s monthly purchase of assets bonds have kept long-term rates low and pushed investors into stocks. The quantitative easing has underpinned substantial gains on many markets this year.

But those long-term rates were on the rise Thursday with the yield on the U.S. 10-year Treasury note continuing to climb as investors sold bonds. The yield was 2.79 per cent, down 0.01 of a point from late Wednesday, after rising to around 2.84 per cent earlier in the day.

On the commodity markets, January crude on the New York Mercantile Exchange gained $1.59 to US$95.44 a barrel.

Speculation over Fed tapering continued to push gold prices lower with December bullion down $14.40 to US$1,243.60 an ounce while December copper was up three cents at US$3.19 a pound.

On the economic front, data showed the number of people applying for U.S. unemployment benefits fell to the lowest since September. First-time applications for benefits dropped by 21,000 last week to a seasonally adjusted 323,000. The number of applications, which is a proxy for how many workers are being laid off, is now near where it was before the Great Recession.

Traders also looked to the release Friday of Canadian retail sales and inflation data for October.