The Canadian dollar strengthened against its U.S. counterpart following the Bank of Canada Monetary Policy Report, in which overall and core inflation for the year was forecasted to be higher.
USDCAD fell to 0.9458 from the pre-news level of 0.9491.
The Bank of Canada predicted that growth in the economy will pick up faster in the next three quarters despite a slump in the second quarter but at a moderate pace of expansion. Exports are projected to recover more slowly than previously anticipated due to lower-than-expected U.S. demand and the strong Canadian dollar, while household spending is now seen as slightly stronger.
“The expected recovery in Canadian exports over the medium term is now projected to be even more muted than in the April report,” the report said.
The bank raised its forecasts for overall and core inflation this year. It sees overall inflation averaging 3.4 percent in the second quarter but easing to 2.8 percent in the third quarter and dropping to the bank’s 2 percent target by the third quarter of next year.
Core inflation has been more subdued but is now seen reaching 2 percent in the final quarter of this year, compared with mid-2012 previously.
The Bank did acknowledge that the Euro zone sovereign debt crisis means that global risks to the Canadian economy have intensified since April. However, the BoC did not refer in its report to the U.S. debt and deficit talks as a risk.