Loonie lifted after BoC strikes neutral stance

The Canadian dollar strengthened against most of it commonly-traded peers today following the Bank of Canada’s unchanged rate decision and a less dovish tone in its accompanying statement.

The Bank of Canada today announced in its latest rate decision that it is maintaining its target for the overnight rate at 1%, where it has remained since September 2010. This was widely expected, and so it was the text of the associated press release that the market focused on.

The central bank noted that recent inflation readings have been ‘slightly higher than expected’ and that economic growth in the fourth quarter of 2013 was faster than its economists had anticipated. While exports 'continue to underperform’, the Bank of Canada acknowledges they have been ‘stronger than previously thought.’

Finally, the statement restated that the next change in monetary policy is data dependent, saying ‘the timing and direction of the next change to the policy rate will depend on how new information influences’ the balance between downside risks to inflation and risks associated with elevated household imbalances.

As this final line suggests, the Bank of Canada struck a neutral, well-balanced tone overall. This is in contrast to the last couple of statements which have been slightly more dovish. This tweak in the rhetoric has boosted the Loonie today and by mid-afternoon in New York USD/CAD had declined 0.48% to 1.1039, close to a two-week low touched earlier in the session.

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