TORONTO: The Canadian dollar fell to its lowest level of the session against its US counterpart on Wednesday after the US Federal Reserve said the economy was weaker but left policy on hold.
The central bank stopped short of offering new monetary stimulus even as it signaled further bond buys could be in store, sending risk assets lower.
"The results will disappoint some in the equity markets that had pinned their hopes on new measures today. Bearish for equities and other risk assets as a result," said Avery Shenfeld, chief economist at CIBC World Markets.
At 2:30 p.m. (1830 GMT), the Canadian dollar was at C$1.0042 against the greenback, or 99.58 US cents, after falling as low as C$1.0049. On Tuesday, the currency finished at C$1.0029 against the greenback, or 99.71 US cents.
The Fed's policy decision comes a day before a key meeting of the European Central Bank. ECB President Mario Draghi heightened speculation of further bank purchases of Italian and Spanish bonds when he said last week that he would do "whatever it takes to preserve the euro."
Still, the risk of disappointment is high and the euro could sell off if the ECB does not deliver.
Elsewhere, investors were largely unmoved by economic data that showed the US private sector added 163,000 new jobs in July, topping economists' expectations of 120,000 new jobs.
The report from payrolls processor ADP came two days ahead of Friday's more important government monthly, non-farm payrolls report.
Also on Wednesday, data pointed to a sluggish global manufacturing picture. US and euro zone factory activity struggled again in July while Chinese manufacturing fell to an eight-month low as economies around the world showed signs of slowing.
Canada's RBC Purchasing Managers' Index posted its first decline in six months.
Canadian bond prices were flat to lower across the curve with the two-year bond off by 6 Canadian cents to yield 1.106 percent, and the benchmark 10-year bond down 53 Canadian cents to yield 1.732 percent.
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