01/28/2014 02:42 EST | Updated 03/30/2014 05:59 EDT

Canadian dollar continues to slide

The Canadian dollar drifted lower Tuesday ahead of the U.S. Federal Reserve meeting Wednesday that could signal how much confidence the Fed has in the U.S. recovery.

The loonie was down 39 cents to 89.60 US at mid-afternoon after trading as low as 89.47 in the morning.

Markets have been severely buffetted over the last few sessions on concerns about emerging markets and plunging currencies in countries such as Turkey, Argentina and China.

But on Tuesday, stocks seemed to recover, buoyed by decisions in India and Argentina to raise interest rates.

The TSX/S&P index was up 85 points to 13,670 at mid-afternoon and New York’s Dow Jones index rose 86 points to 15,923. It was a reversal of steep drops on Friday and Monday.

Waiting on Fed

The market is being influenced by anticipation that the Fed will announce another $10 billion reduction in its monthly bond purchases to $65 billion on Wednesday.

That would indicate the U.S. central bank has confidence in the U.S. economic recovery and could put further pressure on the loonie and other currencies.

For the past four years, the stimulus had the effect of lowering U.S. Treasury yields, encouraging investors to seek out higher returns in emerging economies like India and Brazil.

Now the money underpinning currencies in emerging markets is flowing out, heading for the greenback and forcing emerging market currencies lower.

The loonie is a victim of the same rush to the U.S. dollar. Some experts believe the Canadian dollar will fall as low as 85 cents before the slide stops.

The dollar has fallen throughout January and was last at par with the U.S. dollar in February 2013.

Wavering consumer confidence

A survey of Canadian consumer confidence by the Conference Board of Canada shows significant concern about their finances and the economic outlook for the country.

The share of respondents who think there will be more jobs in six months’ time is just 15.8 per cent, down from 20.3 per cent in January 2013.

Only 18 per cent of respondents who said they were financially better off today compared with six months ago but another 18 per cent said they were worse off.

More were optimistic about the future, with 26.6 per cent saying their finances would get better over the next six months.

The U.S. consumer confidence index rose last month, indicating Americans may be more willing to spend in 2014. However, there was mixed reaction on whether the employment situation in the U.S. would improve, with just 15 per cent expecting better opportunities over the next six months.