08/21/2013 08:43 EDT | Updated 10/21/2013 05:12 EDT

Canadian dollar lower, Fed appears on track to slow bond purchases by year's end

TORONTO - The Canadian dollar closed sharply lower Wednesday, with the greenback gaining ground as minutes of the U.S. Federal Reserve's latest meeting failed to provide clarity on when it might start to wind up its bond purchase program.

However, the minutes from late last month reinforced the view that the central bank will start tapering its US$85 billion of asset purchases later this year if the economy continues to improve.

The commodity sensitive loonie finished the session close to session lows, down 0.78 of a cent at 95.48 cents US as the stronger American dollar helped send prices for oil and metals lower. That is because a stronger greenback makes it more expensive for holders of other currencies to buy commodities which are dollar-denominated. The loonie had fallen as much as 0.87 of a cent.

Many analysts think the Fed judges that the U.S. economy is strong enough to start to let up on its monthly US$85 billion of bond purchases, a program which has kept rates low.

Strong housing data out Wednesday bolstered that point of view as the National Association of Realtors said that existing house sales ran ahead 6.5 per cent in July, much higher than the 0.4 per cent rise that economists had expected. That translated into sales at an annual rate of 5.39 million.

The minutes showed that a few policy-makers wanted to assess more economic data before deciding when to scale back the central bank’s bond purchases. Others said it "might soon be time" to slow the purchases, which have helped keep long-term rates near record lows.

Bond yields were higher with the benchmark, 10-year U.S. Treasury up 0.06 of a point to a two-year high of 2.88 per cent. Yields started rising in late May after Fed chairman Ben Bernanke first mentioned the possibility of the Fed tapering its asset purchases and have surged about 120 basis points since then.

There has been nervousness surrounding the tapering of these asset purchases since the latest quantitative easing effort has also fuelled a strong rally on the U.S. equity markets this year.

On the commodity markets, the October crude contract on the New York Mercantile Exchange closed down $1.26 to US$103.85 a barrel.

September copper slipped three cents to US$3.31 a pound while December gold bullion lost $2.50 to US$1,370.10 an ounce.