Tuesday, 17 January 2012

Canadian Dollar Trims Gains In Choppy Trade After BoC Stands Pat

The Canadian dollar trimmed some gains in choppy trading Tuesday after the Bank of Canada held its key policy rate at 1.00% for the 11th straight time, as expected.The U.S. dollar was at C$1.0143 morning, from C$1.0137 just ahead of the central bank announcement, and C$1.0178 late Monday, according to data provider CQG.
In its one-page statement accompanying the rate decision, the central bank said the global economic outlook "has deteriorated and uncertainty has increased" since the Bank's October Monetary Policy Report.
It said the recession in Europe "is now expected to be deeper and longer" than earlier forecast. It said the economy of Canada's biggest trading partner, the U.S., will proceed "at a more modest pace going forward," a result of household deleveraging, fiscal consolidation and spillover impact from Europe's deepening woes.
On the domestic front, Canada's central bank said there is less slack in the economy and forecast that the economy will return to full capacity by the third quarter of 2013, three months sooner than forecast previously.
The Bank of Canada's statement may have blunted some lingering expectations in the market that the Bank might yet ease its 1.00% policy rate, reiterating its refrain that, "With the target interest rate near historic lows and the financial system functioning well, there is considerable monetary policy stimulus in Canada."
Nonetheless, it offered "no indication that the Bank is seriously thinking about shifting away from the current 'wait and see' stance any time soon," said Peter Buchanan, economist at CIBC World Markets in Toronto.
The Bank is due to deliver a fuller explanation of its position on Wednesday, with the release of its quarterly Monetary Policy Report.
In June 2010, the Bank of Canada became the first central bank in the Group of Seven leading nations to raise interest rates since the onset of the global economic crisis. It hiked rates three times, before moving to the sidelines in September of that year, citing external risks to the domestic economy. It has been sidelined since.