The Canadian dollar demonstrated a sharp drop today as the Bank of Canada left interest rates unchanged and, what is more important, dropped hints of eventual interest hike from its statement.
The BoC left its benchmark overnight rate at 1 percent at today’s policy meeting. Such decision was expected. Yet market participants were still surprised as the statement was significantly less hawkish that the previous statements and did not mention “normalization” of interest rates.
The central bank complained that “uncertain global and domestic economic conditions are delaying the pick-up in exports and business investment, leaving the level of economic activity lower than the Bank had been expecting”. The bank also mentioned that inflation “has remained low in recent months” and that “downside risks to inflation assume increasing importance”. As a result, the BoC did not hint at possibility of higher borrowing costs in the foreseeable future.
USD/CAD surged from 1.0283 to 1.0384 as of 19:37 GMT today. EUR/CAD soared from 1.4172 to 1.4310, trading near the highest since June 2011. CAD/JPY slumped from 95.37 to 93.68.
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