By CountingPips.com
The Bank of Canada held its interest rate today at the all-time low of 0.25 percent and said that the country’s currency rise hampers its economic recovery. Today’s rate decision was widely expected by economic forecasts and the bank reiterated its intention to hold the rate at this level
The BOC commented on the Canadian economy stating, “A recovery in economic activity is also under way in Canada. This resumption of growth is supported by monetary and fiscal stimulus, increased household wealth, improving financial conditions, higher commodity prices, and stronger business and consumer confidence.”
Although a recovery is underway, the BOC stated that the Canadian loonie’s rise is hurting its economic growth saying that the “current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July.” The higher Canadian currency makes its exports more expensive to the U.S. which buys roughly 80 percent of Canada’s exports.
The Canadian loonie has risen against the dollar steadily from earlier in the year as broad-based U.S. dollar weakness has pushed the loonie towards parity. The dollar exchange rate was as high as 1.3000 loonie per USD in early March before a steady decline has brought the exchange rate down to as low as 1.0270 loonie per USD on October 15th.
The BOC projects that the Canadian economy will be a little better in the second half of the year than previously expected and the contraction for 2009 will register 2.4 percent. Going forward the BOC expects the economy to grow by 3.0 percent in 2010 and by 3.3 percent in 2011.
Today, the U.S. dollar has increased versus the loonie in forex trading after the rate decision in the North American trading session. The USD/CAD opened the day trading at the 1.0287 and has increased to trading above the 1.5000 exchange level for the first time since October 9th at 3:36pm EDT.
USD/CAD Hourly Chart
