The loonie surrendered early gains to slip 0.08 of a cent to 98.26 cents US.
Markets have been volatile since late May when Fed chairman Ben Bernanke said the U.S. central bank would consider cutting back on its US$85 billion of bond purchases each month if economic data — particularly job growth — improved.
The stimulus measures, known as quantitative easing, have kept interest and bond yields low and kept a rally going on stock markets practically non-stop since late last year.
Speculation that the Fed will be begin to reduce bond purchases in a process often called tapering has put pressure on equity indexes while bond yields have been rising, pushing mortgage rates higher.
The Fed meeting wraps up Wednesday afternoon, followed by a news conference by Bernanke and analysts expect the central bank won't be in a rush to do anything about stimulus just yet.
"We expect Bernanke will want to use the press conference to reassure markets of the prolonged process between a possible taper (in buying bonds) and an eventual rate hike," said Mark Chandler, head of Canadian FIC Strategy at RBC Dominion Securities.
The U.S. dollar picked up strength mid-morning in the wake of positive economic data, including a solid showing from the latest reading of manufacturing in the U.S. Northeast. The Empire manufacturing index rose more than expected in June, to plus 7.8 from minus 1.4 in the prior month.
However, results of the survey were mixed as the new orders and shipments balances components fell further into negative territory. The employment balance also fell.
Meanwhile, for the first time in seven years, most U.S. homebuilders are optimistic about home sales.
The National Association of Home Builders/Wells Fargo builder sentiment index leaped to 52 this month from 44 in May.
A reading above 50 indicates more builders view sales conditions as good, rather than poor. The index hasn’t been that high since April 2006, just before the housing market collapsed.
Measures of customer traffic, current sales conditions and builders’ outlook for single-family home sales over the next six months also soared to their highest levels in seven years.
The Canadian Real Estate Association reported there were 51,764 residential properties of all types sold across Canada last month, down 2.6 per cent from May 2012. On a month-to-month basis, May showed a 3.6 per cent increase from April with 37,792 units and 36,473 units sold respectively on a seasonally adjusted basis in the first two months of the second quarter.
The May national average price for all types of property in major markets across Canada was $388,910, up 3.7 per cent from a year earlier.
Commodity prices were mixed Monday as July crude on the New York Mercantile Exchange was well off the highs of the session, slipping eight cents to US$97.77 a barrel.
July copper was unchanged at US$3.20 a pound and August gold bullion fell $4.50 to US$1,383.10 an ounce.