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Canadian dollar falls, traders look to Fed tapering, Poloz speech

Canadian dollars

Jonathan Haywar/The Canadian Pres

The Canadian dollar was lower Thursday amid growing speculation that the U.S. Federal Reserve could move as early as next week to start cutting back on a key stimulus measure.

The loonie lost 0.42 of a cent to 93.98 cents US after three days of gains while traders also looked to a speech later in the day by Bank of Canada governor Stephen Poloz.

His speech, entitled "Monetary Policy as Risk Management", comes after the bank released its Financial System Review earlier in the week. The bank lowered its assessment of overall risk in the system.

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A solid retail report and a budget deal in the U.S. Congress raised concerns that the Fed is set to start tapering its US$85-billion of monthly bond purchases.

The U.S. Commerce Department said that retail sales rose 0.7 per cent in November, the biggest gain in five months and a better showing than the 0.6 per cent rise that economists had expected. October's figure was also revised higher to 0.6 per cent from 0.4 per cent.

The budget agreement restores about $63-billion in across-the-board automatic spending cuts and would help prevent another partial shutdown of the U.S. government. Analysts believe the prospect of a shutdown over budget wrangling, along with difficulties in extending the debt ceiling, helped persuade the Fed to postpone tapering in September.

The 16-day shutdown in October crimped economic growth and hurt consumer confidence.

The prospect of Fed tapering has hung over markets since May when outgoing Fed chairman Ben Bernanke first raised the prospect of cutting back on asset purchases, if economic conditions allowed.

That's because those bond purchases have kept long-term rates low, persuaded investors to put their money in the stock market and supported a strong rally on many markets this year.

Fed tapering concerns also continued to punish bullion prices as February gold fell $27.20 to US$1,230 an ounce.

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Bullion prices have also been depressed amid low inflation in many countries and an improving global economy, falling about 25 per cent this year.

Elsewhere on commodity markets, January crude on the New York Mercantile Exchange gained 21 cents to US$97.65 a barrel.

March copper was unchanged at US$3.29 a pound.

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