11/19/2014 08:37 EST | Updated 01/19/2015 05:59 EST

Loonie falls after Keystone vote fails to pass, traders digest Fed minutes

TORONTO - The Canadian dollar closed lower Wednesday as the U.S. currency strengthen amid the release of minutes of the Federal Reserve's latest interest rate meeting in October.

The loonie fell 0.40 of a cent to 88.10 cents US.

The minutes showed Fed officials expressing confidence in the U.S. economy and anticipating that it would continue to improve. It also showed that the policy-makers grappled with whether or not they should stop using the phrase "considerable time" when speaking about how much longer the U.S. central bank would keep its key interest rate low following the end of its monthly bond purchases.

At the Oct. 28-29 meeting, the officials voted to end the Fed's quantitative easing program, involving bond purchases, at the end of last month — completing a gradual reduction that began last December. The Fed also decided to keep using the phrase "considerable time" to avoid its removal being misinterpreted by financial markets.

Rates have been near zero since the 2008 financial crisis. Markets generally expect the Fed to move around the middle of 2015.

The officials also showed that they were concerned about the volatility of U.S. stock markets, weakness in Europe and Asia and inflation, which has been running below the Fed's target of two per cent.

The Canadian dollar had weakened overnight after the U.S. Senate rejected a proposal to fast-track the approval of TransCanada's controversial Keystone XL pipeline. Pipeline supporters needed 60 votes to move the bill forward, but they fell short with a vote 59-41 in favour.

The loonie had risen in recent days, partly from optimism that approval for the pipeline would be secured, which would be a huge support for the Alberta oilsands.

"Accordingly, the debate over the future of Keystone will be pushed into 2015, where a Republican controlled Senate might have a different outcome," said Camilla Sutton, chief FX strategist, managing director, Scotiabank Global Banking and Markets.

On the commodity markets, crude continued to be stuck around the US$75-a-barrel level. Prices were little changed even after the release of data showing that U.S. inventories rose by 2.6 million barrels this week against the 1.5-million-barrel drop that analysts had expected, leading to suggestions that the drop from levels of over $100 over the summer to current prices has been overdone.

The December contract closed down three cents at US$74.58 a barrel.

December copper gained four cents to US$3.05 a pound while December gold bullion fell $3.20 to US$1,193.90 an ounce.

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