Loonie down slightly ahead of expected stimulus move by U.S. Federal Reserve

TORONTO – The Canadian dollar was slightly lower Wednesday morning after a strong runup over the last four sessions that took the loonie to a 13-month high on rising expectations the U.S. Federal Reserve will embark on another round of economic stimulus.

The loonie eased 0.09 of a cent to 102.66 cents US after charging ahead more than 1.8 cents US since last Wednesday as traders anticipated that last week’s disappointing U.S. jobs data for August convinced the Federal Reserve that the economy needs another round of economic stimulus.

Such measures could include a third round of quantitative easing, which would see the Fed print more money to buy up bonds in order to keep interest rates low and encourage borrowing. Such a move would also likely drive the greenback lower.

Traders hope the Fed will make an announcement on further stimulus Thursday at the conclusion of its two-day meeting on interest rates.

However, markets could be in for a severe disappointment. Some analysts believe that the Fed will do nothing more than reassert that it’s willing to do more, especially as a number of its policymakers may be reluctant to do something dramatic in the middle of the U.S. presidential campaign.

The U.S. currency has also lost value over the last few days after European Central Bank president Mario Draghi unveiled a program to buy government bonds as a way of easing borrowing rates for the hardest-hit members of the eurozone such as Spain and Italy. The move served to lessen risk and drive up the value of the euro.

Meanwhile, traders were relieved after Germany’s high court on Wednesday rejected calls to block the Europe’s permanent rescue fund.

Opponents had challenged Germany’s ratification of the European Stability Mechanism, which is a new, permanent €500 billion bailout fund for the 17 countries that use the euro. They had argued that it violated the country’s constitution and sought an injunction preventing the country’s president from signing the legislation into law.

Germany’s ratification of the ESM is key, because the fund cannot work without the country’s participation.

Commodity prices were mixed with the October crude contract on the New York Mercantile Exchange up nine cents to US$97.26 a barrel. Traders hope to get a better idea of demand prospects as the U.S. Energy Department is expected to report later in the morning that the country’s crude stockpiles fell by 3.3 million barrels last week.

Copper prices extended a rally into a fourth day with the December contract ahead one cent to US$3.71 a pound. The metal, viewed as an economic barometer as it is used in so many applications, has run up 18 cents over the last three sessions.

The December bullion contract gained $8.70 to US$1,743.60 an ounce.