The commodity-sensitive loonie dipped 0.29 of a cent to 101.21 cents US as a strengthening U.S. dollar helped depress prices for oil and metals.
The minutes from the U.S. Federal Reserve’s latest policy meeting showed that policymakers expressed broad support for the Fed’s plan to buy bonds to support the U.S. economy.
But there was a split among its members over how long to continue the bond purchases. Some of its 12 voting members thought they would continue through this year, while others thought they should be slowed or stopped before the end of 2013. Those governors were concerned that the continued bond purchases would destabilize the economy.
The dollar had also trended higher earlier in the session as relief over a last-minute deal to avert big tax hikes and spending cuts in the U.S. proved short-lived.
Traders realized that while the deal struck by U.S. lawmakers late Tuesday brought the country back from the so-called fiscal cliff it left unresolved several budget measures, mainly government spending cuts.
Traders worry that U.S. budget talks could pose a threat to risk appetite for months.
For one thing, while the New Year’s Eve deal settled tax rates it only postponed automatic spending cuts to defence and domestic programs for two months. And it doesn’t include any significant deficit-cutting agreement, meaning the country still doesn’t have a long-term plan on how to curb spending.
On top of that, the U.S. government also faces what are likely to be tough negotiations over raising the country’s debt limit in early March.
"U.S. budget optimism has shifted quickly to pessimism as most begin to dread the next two months of political brinkmanship around the debt ceiling and spending cuts," said Scotia Capital chief currency strategist Camilla Sutton.
"Accordingly, markets are generally retracing some of yesterday’s moves."
Worries about further political wrangling pushed the U.S. currency higher, which helped depress commodity prices that had also racked up solid gains Wednesday.
That is because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals, which are dollar-denominated.
The February crude contract on the New York Mercantile Exchange slipped 20 cents to US$92.92 a barrel.
March copper dipped two cents to US$3.72 a pound while February gold bullion lost $14.20 to US$1,674.60 an ounce.
On the economic front, there was positive jobs data a day ahead of the release of the U.S. non-farm payrolls report.
Payroll firm ADP reported that the U.S. private sector created 215,000 jobs last month, well above the 140,000 that had been expected. Economists forecast that Friday's U.S. government report would show the American economy cranked out 150,000 jobs.
Traders also looked ahead to the release Friday of the Canadian employment report for December. Economists forecast only about 5,000 jobs were created last month. But that would follow a strong November where the economy cranked out 59,000 jobs.