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Bank of Canada Remains Hawkish, Loonie Goes Higher

October 23, 2012 at 19:11 by Vladimir Vyun

Sir Robert Borden on 100-dollar billThe Canadian dollar jumped today against the euro after the Bank of Canada maintained its key interest rate and issued a hawkish statement. The loonie was down against the yen as the Japanese currency was surprisingly strong today, following yesterday’s losses. The Canadian currency trimmed its decline versus the US dollar, but remained somewhat below the opening level.

The BoC kept its overnight rate (the main interest rate) at 1 percent today. The decision itself did not affect the currency much as it was expected. The accompanying statement, on the other hand, was interesting to traders as it could suggest the central bank’s view on the future. And the statement provided surprise.

The bank was hawkish:

Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.

That was unexpected, considering that bank’s Governor Mark Carney was somewhat dovish in his speech not long ago. Nevertheless, the mood of the policy statement was positive for the Canadian dollar.

USD/CAD traded at 0.9926 as of 19:11 GMT today, following the rally from 0.9919 to 0.9974. EUR/CAD declined from 1.2954 to 1.2881. CAD/JPY was down from 80.53 to 80.40, while its daily low was at 79.94.

If you have any questions, comments or opinions regarding the Canadian Dollar, feel free to post them using the commentary form below.

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