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Forex - USD/CAD jumps as risk aversion sharpens

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Forexpros - The U.S. dollar was up against its Canadian counterpart on Wednesday, recouping losses from the previous day as risk aversion sharpened amid mounting fears over the global economic recovery.

USD/CAD hit 0.9911 during U.S. morning trade, the daily high; the pair subsequently consolidated at 0.9893, jumping 1.23%.

The pair was likely to find short-term support at 0.9767, Tuesday's low and resistance at 1.0009, Tuesday's high and a six-month high.

The Federal Reserve pledged on Tuesday to keep its benchmark interest rate at an all-time low, adding that it will maintain a loose monetary policy until "at least through mid-2013."

In a statement, the Fed said growth was much slower than expected and the labor market had deteriorated, underlining concerns over the U.S. economic outlook.

"The FOMC now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually" from the July level of 9.1%, the statement said.

The Fed also indicated that it "discussed the range of policy tools available to promote a strong economic outlook recovery in a context of price stability" and said it was prepared to employ the tools "as appropriate".

The Fed's action raised speculation that the Bank of Canada will keep its benchmark interest rate at a record low, as the two economies are closely linked.

The loonie was also weighed after crude oil for delivery in September erased gains to trade at USD80.67 a barrel on the New York Mercantile Exchange, shedding 0.77%.

Raw materials, including oil account for about half of Canada's export revenue.

Elsewhere, the Canadian dollar was also lower against the euro, with EUR/CAD gaining 0.15% to hit 1.4071.

Later in the day, the U.S. was to produce data on the federal budget balance as well as reports on crude oil stockpiles and wholesale inventories.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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