The Canadian dollar jumped against the US dollar after the Bank of Canada rate decision and policy statement.
Even though the benchmark interest rate was kept unchanged at 1 percent as expected, the central bank’s policy statement had a more hawkish tone and signalled the likelihood of a rate hike. The reason was due to stronger-than-expected growth and inflation as well as a less hostile global backdrop.
The loonie strengthened by over 70 pips after the release of the data. This pushed down the USDCAD pair to trade lower at 0.9887 from 0.9958 prior to the news.
In its statement the BOC said “ Europe is expected to emerge slowly from recession in the second half of 2012, although the risks around this outlook remain high. The profile for U.S. growth is slightly stronger, reflecting the balance of somewhat improved labour markets, financial conditions and confidence on the one hand, and emerging fiscal consolidation and ongoing household deleveraging on the other. Economic activity in emerging-market economies is expected to moderate to a still-robust pace over the projection horizon, supported by an easing of macroeconomic policies.”