By CountingPips.com
The Bank of Canada held its interest rate today at the all-time low of 0.25 percent as widely expected by economic forecasts. The bank reiterated its intention to hold the rate at this level through the second quarter of 2010, conditional on the inflation rate and also said that the country’s currency rise could dampen its economic recovery.
The BOC commented on the global economy stating that, “While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly relative to the Bank’s 
projection in its October Monetary Policy Report (MPR).” On Canada’s economy, the bank stated that, “In Canada, as expected, the composition of aggregate demand is shifting towards final domestic demand and away from net exports. In the third quarter, the balance of these shifts resulted in weaker-than-projected GDP growth. Core inflation in recent months has been slightly higher than the Bank had projected, although total CPI inflation remains close to projections.”
The BOC warned that the Canadian loonie’s rise could work against its economic growth as the Canadian currency could be “a significant further drag on growth and put additional downward pressure on inflation.” The higher Canadian currency has made 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 helped push the loonie close to parity. The dollar exchange rate was as high as 1.3000 loonie per USD in early March before a steady decline brought the exchange rate down to its lowest point of the year of approximately 1.0205 loonie per USD in October.
Today’s forex trading has seen the U.S. dollar increasing versus the loonie after the rate decision in the North American trading session. The USD/CAD opened the day trading around the 1.0499 exchange rate and has increased to trading above the 1.0620 level at 1:21pm EDT.
