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Loonie falls nearly a penny amid signs that U.S. Fed has no plans to end stimulus

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(Globalpost/GlobalPost)

TORONTO - The Canadian dollar dropped nearly a penny Wednesday as the head of the U.S. central bank said that prematurely ending the Fed's $85-billion-a month monetary stimulus program could harm the world's largest economy.

The loonie was down of 0.98 of a cent at 96.41 cents US.

Bernanke told Congress that there was a "substantial risk" in scaling back or stopping the bond buyback program, but when pressed, added that action could be taken as early as U.S. Labor Day.

Investors had been on edge that the Fed could begin to withdraw its monetary stimulus soon since recent data showed that outlooks for housing and jobs in the United States were rosier than expected.

The loonie will likely continue to weaken as the U.S. dollar gains strength, said Ian Nakamoto, a portfolio manager at MacDougall, MacDougall and MacTier.

"As long as people have faith that the U.S. economy is on the mend, the U.S. dollar will remain strong and other currencies, including Canada's, will remain weak," he said.

Commodity prices were mixed as June gold bullion fell $10.20 to US$1,67.40 an ounce. The July crude contract was down $1.90 to US$94.28 a barrel, while July copper surged four cents to US$3.38 a pound.

Meanwhile, world markets were mainly higher.

In Europe, the FTSE 100 index of leading British shares, which closed Tuesday at its highest level since late 1999, ended Wednesday up another 0.5 per cent at 6,840, while Germany's DAX rose 0.6 per cent to 8,523. The CAC-40 in France was 0.3 per cent higher at 4,047.

Japan's Nikkei 225 index rose 1.6 per cent to 15,627.26, its highest close in more than five years. The Bank of Japan concluded a two-day policy meeting without any changes to its aggressive monetary easing stance, as expected, and said the world's third-largest economy is showing signs of picking up.

South Korea's Kospi rose 0.6 per cent to 1,993.83 while mainland Chinese shares ended a five-day winning streak, with the Shanghai Composite Index falling 0.1 per cent to 2,302.40. The smaller Shenzhen Composite Index lost 0.9 per cent to 1,021.40. Hong Kong's Hang Seng, where trading was suspended in the morning due to bad weather, fell 0.5 per cent to 23,261.08.

Note to readers: This is a corrected story: A previous verision said the loonie was at 94.28 cents US

http://www.globalpost.com/dispatch/news/the-canadian-press/130522/loonie-heads-lower-ahead-speech-us-federal-reserve-chairman-