Canadian Dollar Rallies After BOC Maintains Policy Rate at 1.00%

September 6, 2013 Wall Street Journal 0 Comments

By David George-Cosh

September 4th, 2013

TORONTO—The Canadian dollar rallied against the U.S. dollar after the Bank of Canada held steady on its policy rate for the 25th consecutive period, as expected.

The U.S. dollar was at C$1.0495 Wednesday, from C$1.0535 late Tuesday, according to data provider CQG.

The Bank of Canada kept its policy rate at 1.00%, a level the central bank called “appropriate” given “the considerable monetary policy stimulus currently in place.”

Still, the Bank of Canada highlighted that the rotation of demand in Canada toward exports and business investment has been delayed because of global economic conditions, while noting that the output gap is forecast to start narrowing in 2014, a period which some economists say is slightly longer than previously forecast.

“Markets have been positioned for something more explicit and dovish but they didn’t get that,” said David Starkey, senior market analyst at Cambridge Mercantile Group in Toronto. “It wasn’t as extreme as what some had priced in.”

The central bank also reiterated that both total and core inflation are expected to remain subdued, and seen returning slowly to the medium-term target of 2% as the output gap closes.

Earlier in the day, the Canadian dollar shrugged off a surge in Canada’s trade deficit that widely missed market expectations in July. Canada’s trade deficit in July was 931 million Canadian dollars ($884.14 million), under expectations of a C$200 million deficit, according to economists at Royal Bank of Canada.

No Canadian data releases are scheduled for Thursday, leaving the loonie to trade on a slew of U.S. economic data, including several labor indicators and factory orders for July.