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Canadian Dollar Dips as Federal Reserve Resumes Tapering Process

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Canadian Dollar Dips as Federal Reserve Resumes Tapering Process

The Canadian dollar was lower Wednesday, resuming its downward spiral after the US Federal Reserve announced plans to taper bond purchases by another $10 billion.

The Federal Reserve will ease $65 billion into the financial markets each month, beginning in February, according to the Federal Open Market Committee’s latest announcement. January marked the second time in as many months the US central bank decided to reduce stimulus measures, a sign policymakers are growing more confident in the nation’s recovery.

North of the border, a stagnating Canadian economy has compelled the Bank of Canada to adopt a more dovish approach to monetary policy, which has resulted in a broad-based devaluation of the Canadian currency.

The loonie suffered a fresh setback, declining 20 pips to 0.8951 as of 9:15 PM GMT. The Canadian dollar was treading water for most of the day, as investors awaited the outcome of the Fed meetings. The loonie was under pressure in the early part of the week, as concerns over emerging markets weighed heavily on commodity currencies. According to HSBC’s purchasing managers’ index, China’s factory activity fell to a six-month low in January amid declines in new orders, exports and employment.

The Canadian dollar fell to a low of 0.8942 US, before a broad consolidation trend brought it back toward 0.8970 US in the hours leading up to the Fed announcement. The loonie has tanked more than 4.2 percent this month, as low employment growth, wavering consumer and business confidence and a strengthening US dollar continue to assert their grip on the Canadian currency. Compared to year-ago levels, the loonie’s value has dipped 9.5 percent.

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