The Canadian dollar rose against the U.S. dollar on Wednesday after the Bank of Canada held interest rates steady but used less dovish language in its policy statement than some expected.
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After cutting rates twice this year to counter the hit from the commodities slump, Canada’s central bank kept rates unchanged for the third straight time on Wednesday.
He says consumption and investment activity have remained strong, supported by accommodative monetary conditions, higher remittance inflow and favourable labour market conditions.
Non-resource exports are now picking up and the national labor market continues to be “resilient”, the bank said.
“There’s no Christmas present under the tree from the Bank of Canada, or at least, no additional one from what they already left there earlier in the year”.
“In Canada, the dynamics of growth have been broadly in line” with the central bank’s October outlook, policymakers said in a statement accompanying their decision to keep their key lending rate at 0.5 per cent.
The former central banker said a more stable oil price should halt the recent fall of inbound investment, taking some of the pressure off the Canadian dollar.
The United States, it said, continues to grow at a “solid pace”, even though private domestic demand remains weaker than expected.
Canadian government bond prices were lower across the maturity curve, with the two-year price down 5 Canadian cents to yield 0.622 percent and the benchmark 10-year falling 29 Canadian cents to yield 1.524 percent. “The ongoing terms-of-trade adjustments and shifting growth prospects across different regions are contributing to exchange-rate movements”.
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This week’s data released by the federal statistical agency showed that real GDP grew at an annualized rate of 2.3 per cent during the three-month period that ended in September. “In this context, [monetary] policy divergence is expected to remain a prominent theme”. The price of oil (West Texas Intermediate) prices has mostly been below the bank’s October monetary policy report (MPR) assumption of US$45 a barrel. He surprised markets by lowering the key rate by a quarter-percentage-point in January, and then cut again in July amid a slower-than-expected recovery in nonresource exports. Core inflation is close to 2 per cent as the effects of the lower dollar and the output gap continue to offset each other. The overheating in Vancouver and Toronto goes on, as does cooling in Alberta and Saskatchewan resulting in greater financial stability risks.
