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Loonie up after sharp declines, traders look to Bank of Canada rate announcement

A Canadian dollar, left, and a Euro are seen next to a series of U.S. dollars in this January 26, 2011 photo in Montreal. THE CANADIAN PRESS/Paul Chiasson

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A Canadian dollar, left, and a Euro are seen next to a series of U.S. dollars in this January 26, 2011 photo in Montreal. THE CANADIAN PRESS/Paul Chiasson

TORONTO - The Canadian dollar closed higher Thursday as the currency continued to stabilize following a string of sharp declines.

The loonie was up 0.16 of a cent to 91.53 cents US after a flat performance the previous session.

But the currency has slid almost three per cent so far this year amid disappointing trade and employment data and a dovish stance by the Bank of Canada on interest rates.

Also, the U.S. dollar has trended higher as the Federal Reserve starts to cut back on its massive bond purchases which have kept long-term rates low and encouraged a strong rally on equity markets.

The Fed has cut monthly bond purchases by US$10 billion to $75 billion, but says further tapering depends on the strength of the economy, particularly job creation.

Traders are now looking ahead to next Wednesday's Bank of Canada interest rate announcement for further indications of what the central bank might do about rates. There are some analysts who expect the central bank to cut rates this year.

On the commodity markets, February crude on the New York Mercantile Exchange slipped 21 cents to US$93.96 a barrel.

March copper declined two cents to $3.34 a pound while February bullion gained $1.90 to US$1,240.20 an ounce.

On the economic front, the U.S. consumer price index rose a slight 0.3 per cent in December, translating into an annualized rate of 1.5 per cent.

And the U.S. Labor Department said that claims for jobless benefits declined last week by 2,000 to 326,000, which was in line with expectations.

This is the first glimpse of the job market since the release last Friday of disappointing employment data that showed job creation coming in at 74,000, far less than the 200,000 that had been expected.

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