Forex News – Bank of Canada keeps interest rate unchanged at 1%, yet Loonie flies

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The Bank of Canada maintained its benchmark interest rate at 1.0 percent as expected. However, following the rate announcement came a more hawkish statement with some optimistic wording, such as:

“In Canada, the economic expansion is proceeding largely as expected … The possibility of greater momentum in household borrowing and spending in Canada represents an upside risk to inflation … some of the considerable monetary policy stimulus currently in place will be eventually withdrawn …”

The Bank will continuously monitor inflationary pressures on the Canadian economy as higher prices as well as increasing commodity prices and demand for Canada’s natural resources could elevate inflation in the longer term.

Monday’s release of GDP indicated the Canadian economy grew by 3.9 percent in the first quarter, although lower than the Bank’s target 4 percent, but growth is expected to slow down later in 2011.

Before the release of the announcement at 13:00GMT, USDCAD was trading at 0.9717, then dipped 27 pips in just two minutes to 0.9690. By 13:39GMT, USDCAD dropped further to 0.9654 as expectations for a rate hike as soon as September became more confident.