Loonie Loses Ground as Traders Await Taper News

The Canadian dollar is most at risk for weakness in a situation that involves the Federal Reserve in the United States tapering its asset purchase program. As a result, the loonie is experiencing a degree of weakness as Forex traders await the outcome of a two-day Fed meeting slated to end today.

With the United States as Canada’s largest trading partner, the fact that there is a divergence in monetary policy is weighing on the loonie. In fact, among G-7 nations, the Canadian dollar is the currency with the largest inverse correlation to 10-year Treasury notes. When the taper is announced, and the bond situation changes in the United States, the Canadian dollar is likely to feel the biggest impact.

As a result, many traders are watching for the coming Federal Reserve announcement. The decision to start the taper could come as early as today, and that has many positioning themselves for a degree of loss for the loonie. Even if the decision doesn’t come today, though, the Canadian dollar could still see weakness. It’s coming at some point, and the concern about Canada’s economy and a possible housing bubble mean that the Bank of Canada can’t keep up with the Fed.

At 14:55 GMT USD/CAD is up to 1.0645 from the open at 1.0610. EUR/CAD is up to 1.4649 from the open at 1.4604. GBP/CAD is up to 1.7445 from the open at 1.7253.

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