Dollar Falls as Bank of Canada Keeps Interest Rate on Hold
TORONTO – The loonie dropped sharply after the Bank of Canada kept its key interest rate target on hold Wednesday, as North American stock markets pulled back on profit-taking.
The Canadian dollar was trading at an average price of 78.30 cents (U.S.), down 0.65 of a cent.
“The loonie seems to have had its peak when the Bank of Canada was raising interest rates and the reports of year-over-year economic growth were coming out stronger than people had expected,” said Norman Levine, managing director of Portfolio Management Corp.
“Now people are seeing that rates aren’t going to go up as fast in Canada as they were before and that economic growth in Canada will probably be lower next year than it was this year.”
The Bank of Canada left its benchmark interest rate unchanged Wednesday following two straight hikes since July in response to the economy’s impressive run over the last four quarters. The central bank warned it expects to stick to its rate-hiking path, although at perhaps a more tentative pace.
In its scheduled announcement, the bank said it held off this time in part because it expects the recent strength of the Canadian dollar to slow the rise in the pace of inflation.
The move in the loonie Wednesday came as the Toronto Stock Exchange’s S&P/TSX composite index fell 50.37 points to 15,854.77.
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The Canadian Press