Bank of Canada Shocks Market Cutting Main Interest Rate, CAD Sinks

It looks like central banks decided to rock the market continuously. Last week it was the Swiss Nation Bank that shocked traders, today it was the Bank of Canada that made an unexpected move by cutting its benchmark overnight rate. Needless to say, the Canadian dollar suffered as a result of such decision.

The BoC reduced its key interest rate by 25 basis points to 0.75 percent today. The central bank was rather pessimistic in its economic outlook saying:

Although there is considerable uncertainty around the outlook, the Bank is projecting real GDP growth will slow to about 1 1/2 per cent and the output gap to widen in the first half of 2015.

The reason for such pessimism was the sharp drop of prices for crude oil that was hugely detrimental to the oil-exporting economy of Canada. The bank said in the statement:

The oil price shock increases both downside risks to the inflation profile and financial stability risks.

The Canadian dollar sank the most in three years after the announcement. The currency touched the lowest level in almost six years against its US counterpart.

USD/CAD jumped from 1.2110 to 1.2347 as of 20:02 GMT today, reaching the high of 1.2393 intraday — the strongest rate since April 2009. EUR/CAD climbed from 1.3984 to 1.4305, while CAD/JPY declined from 98.04 to 95.50.

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