The Canadian dollar sank today, dropping to new multi-year lows versus the US dollar and the euro, after the central bank maintained its key overnight rate unchanged and signaled that an interest rate cut is possible.
The Bank of Canada kept its main interest rate at 1 percent at today’s meeting. As was expected, the tone of the accompanying statement was dovish. The bank said:
Inflation in Canada has moved further below the 2 per cent target, owing largely to significant excess supply in the economy and heightened competition in the retail sector. The path for inflation is now expected to be lower than previously anticipated for most of the projection period.
The BoC added that “inflation is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance” and then concluded:
The timing and direction of the next change to the policy rate will depend on how new information influences this balance of risks.
Such wording suggests that the central bank may consider lower interest rates as a measure to spur inflation.
USD/CAD climbed from 1.0966 to 1.1052 as of 15:56 GMT today, trading near the highest level since September 2009. EUR/CAD jumped from 1.4869 to 1.4994 — the strongest since January 2010. CAD/JPY dipped from 95.07 to 94.29 after rising to 95.32.
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