Forex News – BOC warns of inflation risk, scope for rate cut
January 23, 2014 1:22 pm
The Canadian dollar tumbled to fresh 4-year lows against its US counterpart today after being weighed down by a dovish Bank of Canada outlook on the country’s economy.
The BOC held its monthly policy meeting on Wednesday, and kept its benchmark interest rate at a record low 1%. While this was in line with expectations, the central bank left open the possibility for a rate cut in the future.
It is expected that any policy easing would depend on upcoming economic data that would shed more light on the progress of the economy.
BOC Governor Stephen Poloz said that the central bank has become more concerned about weak inflation, and that a “strong” currency is still hampering the country’s exports. According to the IMF, Canada’s GDP for 2013 is forecast at 1.7% and 2.2% in 2014.
These dovish remarks pushed the Canadian dollar to its lowest level since July 2009 by Thursday’s European session. The greenback has gained 1.7% against the loonie since the BOC monetary policy announcement and is trading near the 1.1140 level.
The Bank made reference in its Monetary Policy Report to the current strength of the Canadian dollar, signaling that it was still too high and was hampering exports. This combined with the Governor’s reference to the risks of low inflation, was a catalyst for selling the loonie.
The currency has scope to weaken further if the new data disappoints, as this would increase the likelihood for a rate cut.
The Canadian dollar tumbled to fresh 4-year lows against its US counterpart today after being weighed down by a dovish Bank of Canada outlook on the country’s economy.
The BOC held its monthly policy meeting on Wednesday, and kept its benchmark interest rate at a record low 1%. While this was in line with expectations, the central bank left open the possibility for a rate cut in the future.
It is expected that any policy easing would depend on upcoming economic data that would shed more light on the progress of the economy.
BOC Governor Stephen Poloz said that the central bank has become more concerned about weak inflation, and that a “strong” currency is still hampering the country’s exports. According to the IMF, Canada’s GDP for 2013 is forecast at 1.7% and 2.2% in 2014.
These dovish remarks pushed the Canadian dollar to its lowest level since July 2009 by Thursday’s European session. The greenback has gained 1.7% against the loonie since the BOC monetary policy announcement and is trading near the 1.1140 level.
The Bank made reference in its Monetary Policy Report to the current strength of the Canadian dollar, signaling that it was still too high and was hampering exports. This combined with the Governor’s reference to the risks of low inflation, was a catalyst for selling the loonie.
The currency has scope to weaken further if the new data disappoints, as this would increase the likelihood for a rate cut.
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