BUSINESS

Loonie heads higher as Fed signals it will keep interest rate steady for now

09/17/2014 09:15 EDT | Updated 06/16/2017 00:54 EDT
TORONTO - The Canadian dollar fell more than a quarter of a cent Wednesday amid indications that the U.S. Federal Reserve remains in no hurry to raise record low interest rates.

The loonie dipped 0.28 of a cent to 90.88 cents US following the U.S. central bank's afternoon announcement.

The Fed reassured markets that it plans on keeping a key interest rate at a record low for a considerable period because a broad range of U.S. economic measures remain subpar.

The central bank said it planned to keep its benchmark rate near zero 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 expectations have been for the Fed to keep rates at current levels until mid-2015, although recent improvements in the U.S. economy have encouraged speculation that it might move to raise rates sooner.

The bank also retained language signalling its plans to keep short-term rates low "for a considerable time" after it ends its monthly bond purchases in October. Meanwhile, it said it would reduce those purchased by another $10 billion. The quantitative easing has helped keep long-term borrowing rates low.

"In the Fed's mind, the economy still has work to do, but it's improving," said Mike Arone, an investment strategist with State Street Global Advisors.

Meanwhile, currency traders are also waiting for the outcome of an independence referendum in Scotland on Thursday. Polls indicate that the result is generally believed to be too close to call. A Yes vote would result in huge complications from currency to membership in the European Union and NATO.

The Canadian dollar had climbed two-thirds of a cent Tuesday amid signs that the Bank of Canada doesn't plan on interfering with the value of the loonie.

In a speech, Bank of Canada governor Stephen Poloz said the central bank continues to take a hands-off approach when it comes to the Canadian dollar, adding that trying to target the exchange rate would hurt its ability to pursue independent monetary policy.

Economists have long suggested that Poloz's "dovish" talk on interest rates has helped take some of the shine off the loonie in a move to bolster exports.

In commodities, the October crude contract on the New York Mercantile Exchange dropped 46 cents to US$94.42 a barrel.

December gold bullion fell 80 cents to US$1,235.90 an ounce, while December copper dipped two cents to US$3.14 a pound.

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