Canadian Dollar Rallies as BOC Holds Interest Rate Again
The Canadian dollar advanced against its US counterpart Wednesday, as the Bank of Canada held its overnight rate at 1 percent and downgraded its outlook on the economy.
The loonie, as Canada’s currency is called, advanced 0.11 percent to 0.9307 US. The loonie rebounded from an intraday low of 0.9266 US.
The USDCAD declined 0.14 percent to 1.0740. The pair is likely supported at 1.0721, the 20-day average. Initial resistance is likely found at 1.0784.
In economic data, Canadian manufacturing shipments increased faster than forecast in May, Statistics Canada reported today in Ottawa. Manufacturing shipments rose 1.6 percent, following a 0.2 percent drop the previous month. Economists forecast a monthly gain of 1 percent.
The Bank of Canada decided again to keep its benchmark lending rate at 1 percent, the same level it has been since September 2010. The central bank announced today it would target the overnight rate at 1 percent as the economy struggles to regain momentum.
“The Bank is neutral with respect to the timing and direction of the next change to the policy rate, which will depend on how new information influences the outlook and assessment of risks,” the bank said in its rate statement.
The BOC also downgraded its outlook on the Canadian economy, pushing back its timeline for when it expects the economy to return to full capacity. The central bank now says it expects the economy to return to full capacity by mid-2016, rather than late-2015.
The BOC downgraded its forecast for economic growth by a tenth of a percentage point to 2.2 percent this year and 2.4 percent next year.
The Canadian economy expanded just 1.2 percent annually in the first quarter, as severe weather weighed on household consumption, business spending and government spending.
The Canadian economy has struggled with consistency in 2014, as jobs growth has slowed to an average of just 6,000 per month. Canadian employment declined 9,400 in June, as the unemployment rate nudged up a tenth of a percentage point to 7.1 percent.
The central bank’s revised outlook suggests interest rates are likely to remain low for longer than initially forecast. However, with inflation levels rising, the BOC probably won’t consider cutting the overnight rate any time soon.
Canadian consumer prices advanced 2.3 percent annually in May.
Statistics Canada will report on June consumer price changes Friday. Economists expect consumer inflation to remain above 2 percent for the third consecutive month.
In other trading, the Canadian dollar advanced against the Japanese yen. The CADJPY climbed 0.11 percent to 94.61. The pair is likely supported at 94.30. Initial resistance is likely found at 94.78.
The loonie strengthened against the euro, as the EURCAD tumbled 0.42 percent to 1.4534. The pair faces initial support at 1.4589 and resistance at 1.4669.
The loonie strengthened against the British pound amid mixed UK labour market data. Unemployment in the UK declined 36,300 in June, but average earnings advanced at a slower rate than forecast.
The GBPCAD declined 0.19 percent to 1.8409. Initial support is likely found at 1.8336. Initial resistance is at 1.8513.
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