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Canadian Dollar Edges Higher Ahead of BOC Announcement

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Canadian Dollar Edges Higher Ahead of BOC Announcement

The Canadian dollar edged higher Monday, as investors look ahead to the Bank of Canada’s mid-week interest rate announcement.

At 0.9128 US, the loonie was 8 pips higher in the late afternoon trade, falling off its intraday high of 0.9148. The Canadian dollar will have a long way to go to reclaim the spot it held just one year prior, when its value exceeded that of its southern neighbour. Over the past year, a turbulent global economy and underlying domestic weaknesses have trimmed more than 9 percent off the loonie’s value. Since the start of the year, the loonie has shed more than 2.5 percent.

While investors aren’t expecting the BOC to raise interest rates, they will be looking for any change in the central bank’s language about the possibility of a future rate hike. The BOC has been forced to adopt a more neutral approach to interest rates over the past several months, dropping any notion of bias toward higher lending rates. Canada’s benchmark rate has been left at 1 percent since September 2010.

The loonie is unlikely to escape bearish pressure any time soon. Weak trade and employment data, combined with the BOC’s dovish tone, are likely to keep the loonie trending lower over the short-term. At the same time, pressure from a more assertive American currency will continue to weigh heavily on the Canadian dollar. As the US labour market continues to stabilize, the Fed will use inflation as its key guidepost for future monetary policy.

The Fed’s next monetary policy meetings are scheduled to take place January 28-9 in Washington.

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