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Loonie Advances as BOC Acknowledges “Stronger Growth” in Canada

H.S. Borji
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The Canadian dollar advanced against its US counterpart Wednesday, as the Bank of Canada acknowledged the economy was growing as expected amid renewed optimism that a recently brokered ceasefire between Ukraine and Russia would hold.

The loonie, as the Canadian currency is called, rose 0.4 percent to 0.9185 US, picking up where it left off before the Labour Day weekend. The loonie broke 92 US cents last week following a high profile corporate merger between Burger King and Tim Hortons and strong Canadian GDP data.

In policy news, the Bank of Canada maintained its data-dependent, neutral bias on Wednesday, opting to hold its key interest rate at 1 percent.

The BOC said “stronger growth in the second quarter has brought GDP to almost exactly the level the Bank had projected in July’s [Monetary Policy Report].” The July report said Canadian GDP is forecast to grow 2.25 percent during the 2014-16 period, which would bring the economy back to full capacity.

Canada’s economy advanced 0.8 percent in the second quarter. Compared to year-ago levels, the economy accelerated 3.1 percent, official data revealed last week.

Today’s rate statement reaffirmed the view the BOC is unlikely to lower interest rates. Although no change to the interest rate target is expected any time soon, economists believe the next move will probably be up.

The central bank has maintained its target for the overnight rate at 1 percent since September 2010.

In international news, Ukraine said on Wednesday it had reached a ceasefire agreement with Russia to put an end to the violence in the eastern part of the country. Pro-Russian rebels have rejected the move, saying a ceasefire would not be possible until Kiev withdrew its military forces from the region.

The agreement provides little assurance that a long-term ceasefire would hold, but nevertheless raised optimism that both sides were looking to resolve the escalating conflict that has shaken the international markets.

Clashes in Eastern Europe have weighed heavily on the European markets. The Eurozone economy stagnated in the second quarter, with its star economy contracting for the first time since 2013. Germany’s gross domestic product declined 0.2 percent in the April-June period.

Canada had no economic data to report on Wednesday. On Thursday Statistics Canada will report on international merchandise trade for July. The week’s biggest release comes Friday when StatsCan reports on the employment situation.

Canadian employers added 10,000 payrolls in August, according to forecasts. The unemployment rate is expected to hold steady at 7 percent.

In US data, factory orders accelerated at a faster pace in July, as demand for commercial aircraft surged. US factory orders increased 10.5 percent, following a revised 1.5 percent gain in June, the Commerce Department reported today.

Like Canada, the United States will release key employment figures on Friday. US employers added more than 200,000 payrolls in August, as the unemployment rate edged down to 6.1 percent from 6.2 percent, according to forecasts. August is expected to mark the seventh consecutive month job creation has exceeded the critical 200,000 level.

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