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The Canadian Press - ONLINE EDITION

Canadian dollar lower, Fed minutes raise questions about length of stimulus

By: Malcolm Morrison, The Canadian Press

Posted: 02/21/2013 7:48 AM | Comments: 0 | Last Modified: 02/21/2013 3:29 PM

Canadian dollars, or loonies, sits on their American counterparts in this Sept. 20, 2007 photo in Montreal. THE CANADIAN PRESS/Paul Chiasson

TORONTO - The Canadian dollar fell to a fresh seven month low against the greenback Thursday amid concerns over how long the U.S. Federal Reserve will continue its current stimulus program of bond purchases.

The loonie was down 0.14 of a cent to 98.16 cents US and went as low as 98 cents as traders avoided risk and resource-based currencies such as the loonie.

The release of the minutes from the Fed’s last policy meeting showed some policy-makers were worried that the bank’s US$85 billion in monthly bond purchases could eventually unsettle financial markets or cause the central bank to take losses.

The purchases, commonly known as quantitative easing, are designed to boost the U.S. economy by increasing liquidity in financial markets.

"The take-aways of the minutes are important as they suggest that there is increased concern over QE, particularly with how it might complicate the ultimate withdrawal from asset purchases in the future," observed Scotia Capital chief currency strategist Camilla Sutton.

The Fed said it would review its asset purchases program at its March meeting.

Traders flocked to the perceived safe haven of U.S. Treasuries following the release of the Fed minutes Wednesday, pushing the greenback higher and commodities lower.

A higher U.S. dollar pressures commodities because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals, which are dollar-denominated.

The April crude contract on the New York Mercantile Exchange lost $2.38 to US$92.84 a barrel on top of a $2 slide Wednesday.

Oil prices were also undercut by data showing U.S. oil inventories rose last week by a much more than expected 4.14 million barrels.

Copper prices were down sharply for a second day with the March contract on the Nymex off five cents at US$3.55 a pound, adding to a four-cent fall Wednesday.

Gold prices surrendered earlier minor gains to move lower for a seventh straight day. The April contract edged closed down 60 cents to US$1,578.60 an ounce after closing at a seven-month low Wednesday.

The latest declines in bullion prices were sparked by the Fed minutes because the central bank's quantitative easing has supported gold. That is because the bond buying program has encouraged worries about rising inflation and gold is seen as a hedge against rising prices.

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