The Canadian dollar closed higher Wednesday, adding to a recent string of advances as the release of the minutes of the last Federal Reserve meeting eased concerns about the pace of interest rate hikes and pushed the greenback lower.
The loonie gained 0.42 of a cent to end at 91.98 cents (U.S.) after running ahead 0.39 of a cent on Tuesday.
Two weeks before the Fed’s regular meeting March 18-19, the Fed held an unusual and previously unannounced video conference to debate the issue of rates, according to the minutes.
In the end, the Fed settled on an open-ended approach – that even after employment and inflation are nearly back to normal, short-term rates may need to stay unusually low for a while because the economy isn’t completely healthy.
Stock and bond investors read the minutes to signal that the Fed plans to favour low short-term rates longer than many had assumed.
The minutes covered the first Fed meeting at which Janet Yellen presided as chair, as well as the March 4 video conference. At both sessions, the issue of the language the Fed uses in its statements to signal the timing of future policy actions was a topic of extended debate.
The Fed has kept its key short-term rate at a record low near zero since December, 2008. It made no change to that rate at the March meeting. But it dropped language from its statement that had previously said this rate would likely remain low “well past” the time unemployment fell below 6.5 per cent.
Instead, the Fed said it would review a “wide range of information” before starting to raise rates. It repeated language that it expected to keep rates low for a “considerable time” after it stops buying bonds.
The loonie is now at a three-month high and has advanced 3.4 per cent just since March 20.
Camilla Sutton, chief foreign exchange strategist at Bank of Nova Scotia, said there were a number of reasons for the recent lift.
“The more positive shift has come from a string of better-than-expected and improving domestic data releases [GDP, inflation, labour and trade] and Monday’s Bank of Canada business outlook survey that confirmed that businesses are increasingly optimistic as the impact of a weak Canadian dollar combines with a U.S. recovery to support growth,” she said.
Prices were mixed on the commodity markets with May crude on the New York Mercantile Exchange up $1.04 to $103.60 a barrel.
May copper was down 1 cent to $3.04 a pound, while June gold bullion fell $3.20 to $1,305.90 an ounce.
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