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Canadian Dollar Eases off 2-week Highs, as Markets Ponder Monetary Policy

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Canadian Dollar Eases off 2-week Highs, as Markets Ponder Monetary Policy

The Canadian dollar eased off two-week highs against its US counterpart, as lacklustre commodities trade and a rebounding US economy shifted the market’s focus to GDP and monetary policy.

The loonie was flat in the early session before falling below 0.92 US, as the markets rallied behind the US dollar following a strong day of economic reporting. The Canadian dollar fell 0.24 percent to 0.9187.

Elsewhere, the EURCAD edged down to 1.4787, declining 0.14 percent.

The pace of economic releases will pick up again in the latter half of the week, giving investors the opportunity to size the recoveries of Canada and the United States. Investors are already looking ahead to the next Bank of Canada policy meeting, slated for June 4. Friday’s GDP reading could offer clues about the BOC’s language in the next rate statement.

Statistics Canada is expected to show the economy expanded 0.1 percent in March and up to 1.8 percent in the first quarter, underscoring Canada’s modest recovery at the start of the year. The growth rate might not be enough to force the BOC to drop its dovish sentiment toward interest rates. However, gradually rising consumer prices may prompt policymakers to soften their language about a rate cut.

The International Monetary Fund forecasts Canada to grow 2.3 percent in 2014.

Statistics Canada last Friday said consumer prices rose 2 percent annually in April, led by higher energy prices. That was the first time since April 2012 consumer inflation was at 2 percent.

The BOC, which targets inflation at 2 percent, has left the benchmark interest rate at 1 percent since September 2010. No change is expected June 4.

The US GDP report, slated for Thursday, is expected to be much less optimistic than the Canadian reading. Government economists are expected to show the economy contracted in the first quarter. The initial estimate showed growth coming in at 0.1 percent. Severe weather was largely blamed for the slowdown.

The US economy is expected to rebound strongly the rest of the year, and should outpace Canada in terms of growth rate. How this impacts the US dollar is yet to be seen. If a rebounding US economy boosts sentiment in favour of a rate-hike, the greenback could enjoy newfound bullishness. The Federal Reserve has not indicated any plans to raise the benchmark interest rate despite growing signs officials will rein in record stimulus by the fall.

The minutes of the April 29-30 Fed meetings revealed that officials discussed a potential rate-hike strategy, but stopped short of outlining a timetable for when they could enact such changes. The Fed unanimously agreed to taper bond purchases by another $10 billion at last month’s meetings.

The Fed’s next policy meetings will take place on June 17-8. The meetings will be associated with a summary of economic projections.

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