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 outlook and also said that the country’s currency rise could stifle its economic recovery.
The BOC statement said the “global economic recovery is under way” but that the recovery “continues to 
depend on exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.”
Canadian economic growth, according the Bank, “resumed in the third quarter of 2009 and is expected to have picked up further in the fourth quarter. Total CPI inflation turned positive in the fourth quarter and the core rate of inflation has been slightly higher than expected in recent months.”
Looking forward, the BOC projects that the Canadian economy will expand by 2.9 percent in 2010 and by 3.5 percent in 2011 following a decline of 2.5 percent in 2009.
The BOC warned that the Canadian loonie’s “persistent strength” may 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 Canadian currency, with its steady gains versus the U.S. dollar, has made its exports more expensive to the United States which purchases approximately 80 percent of Canada’s exports.
Canada’s Leading Indicators increase more than expected in December.
A separate report from Statistics Canada showed that the Leading Indicators index increased for the seventh straight month in December. The Leading Indicator Index, which measures future economic activity, surged by 1.5 percent in December following an increase of 1.3 percent in November. The December rise marked the largest one month gain since September 1958 and beat market forecasts looking for an increase of 1.0 percent.
All ten of the measured sectors that make up the leading indicator index showed increases for the second straight month. Durable goods orders and the housing index index were leading sectors for the month with gains of 8.1 percent and 3.0 percent, respectively. The stock market index rose by 1.7 percent in December while other durable goods sales gained by 1.4 percent in December. Other notable gains were the US Conference Board indicator which rose by 0.8 percent and business & personal services employment which also advanced by 0.8 percent for the month.
Canadian dollar mixed in forex trading.
The Canadian dollar has been mixed today in the currency markets after the interest rate announcement and leading indicator release in the North American trading session. The U.S. dollar has advanced versus the Canadian “loonie” dollar as the USD/CAD has increased from today’s opening exchange rate of 1.0251 at 00:00 GMT to trading at 1.0320 this afternoon at 1:28pm EST. The euro, meanwhile, has fallen verses the loonie in trading today as the EUR/CAD currency pair has declined from 1.4767 to trading at 1.4741. The loonie has edged lower against the Japanese yen as the CAD/JPY has dipped from 88.47 yen per loonie to trading at 88.29. The Australian dollar has gained ground versus the loonie as the AUD/CAD has advanced from 0.9505 to trading at 0.9537 while the New Zealand dollar has also gained with the NZD/CAD rising from 0.7593 to trading at 0.7622.
