TORONTO: The Canadian dollar slid against the US dollar on Wednesday after a four-day rally, with traders looking ahead to the Federal Reserve's policy announcement on Thursday.
Markets are anticipating the US central bank to announce a third round of bond purchases in an effort to revitalize a sluggish economy that has dragged on the country's employment growth.
"Nothing's going on today -- a little bit of profit-taking across the markets. I think the markets as a whole still expect QE3 from the Fed tomorrow and that's really how they're positioned right now," said Shane Enright, executive director, foreign exchange sales at CIBC World Markets.
"If we get it, I imagine there will still be some volatility, probably broader consolidation. If we don't see it, there should be US strength across the board."
Stimulus action by the Fed is expected to weigh on the US dollar against currencies such as the Canadian dollar.
At 3:19 p.m. (1919 GMT), the currency was at
C$0.9767 versus the greenback, or $1.0239, weaker than Tuesday's finish at C$0.9732 to the US dollar, or $1.0275.
The Canadian unit was underperforming against major currencies, including the euro, which touched a fourth-month high against the US dollar after the German Constitutional Court said the country could ratify the euro zone's new bailout fund and budget pact.
Canada's dollar hit a 13-month high on Tuesday, propelled by a confluence of factors, including Fed stimulus expectations, a hawkish Bank of Canada stance, strong domestic job figures and a bond buyback plan announced by the European Central Bank.
"Canada is stretched a little here. We're really the only currency trading at its 13-month highs, and so I think the others are playing catch-up maybe, and Canada is just waiting for the next catalyst," said Camilla Sutton, chief currency strategist at Scotiabank.
"We're totally happy to ignore yesterday's absolutely miserable trade balance data and now waiting for FOMC tomorrow," she added.
Dismal data from the government on Tuesday showed that the country's trade deficit hit a record high in July, but it was largely ignored.
Canadian government bond prices retreated across the curve, with the two-year bond down 3.5 Canadian cents to yield 1.194 percent and the benchmark 10-year bond falling 43 Canadian cents, yielding 1.901 percent.
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