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OTTAWA -- The Bank of Canada warned Thursday that the continued rapid rise of the Canadian dollar could "fully offset" recent positive developments in the economy.
The statement was issued in its scheduled rate decision, in which the central bank, as widely expected, kept its benchmark rate unchanged at 0.25%, and reiterated its intent to keep it at that level until June, 2010.
Given the expected call on rates, analysts were closely watching this announcement to see if the central bank would acknowledge the recent rise of the dollar, or the ascent in long-term bond yields.
The central bank delivered on the dollar front. It noted financial conditions and commodity prices had "improved significantly" in recent weeks, while consumer and business confidence had "recovered modestly."
However, the central bank added: "If the unprecedentedly rapid rise in the Canadian dollar -- which reflects a combination of higher commodity prices and generalized weakness in the U.S. currency -- proves persistent, it could fully offset these positive factors."
The bank statement was careful in not identifying what it believed was driving up the currency. In the past, factors not linked to economic fundamentals, such as the sudden drop in value of the U.S. dollar, have been of concern to the central bank.
Nor did the bank statement suggest it was prepared to intervene in markets to bring down the dollar`s value. Since the central bank announced on April 23 it would not pursue so-called quantitative and credit easing, which involves flooding financial markets with cash, the Canadian dollar has gained roughly 12%, from a low of 81.37 U.S. cents to a high set Tuesday of 92.36 U.S. cents.
At first glance, the Canadian dollar appeared to be unaffected by the central bank`s statement. The Canadian dollar was up slightly, to 90.33 U.S. cents, as of trading at roughly 9:40 a.m. ET, after falling more than 2 U.S. cents in the previous day.
In a note released prior to the bank`s rate announcement, economists from the Bank of Nova Scotia said it expected the dollar to march toward parity with the U.S. greenback sometime in 2010.
Read the full article here.
The statement was issued in its scheduled rate decision, in which the central bank, as widely expected, kept its benchmark rate unchanged at 0.25%, and reiterated its intent to keep it at that level until June, 2010.
Given the expected call on rates, analysts were closely watching this announcement to see if the central bank would acknowledge the recent rise of the dollar, or the ascent in long-term bond yields.
The central bank delivered on the dollar front. It noted financial conditions and commodity prices had "improved significantly" in recent weeks, while consumer and business confidence had "recovered modestly."
However, the central bank added: "If the unprecedentedly rapid rise in the Canadian dollar -- which reflects a combination of higher commodity prices and generalized weakness in the U.S. currency -- proves persistent, it could fully offset these positive factors."
The bank statement was careful in not identifying what it believed was driving up the currency. In the past, factors not linked to economic fundamentals, such as the sudden drop in value of the U.S. dollar, have been of concern to the central bank.
Nor did the bank statement suggest it was prepared to intervene in markets to bring down the dollar`s value. Since the central bank announced on April 23 it would not pursue so-called quantitative and credit easing, which involves flooding financial markets with cash, the Canadian dollar has gained roughly 12%, from a low of 81.37 U.S. cents to a high set Tuesday of 92.36 U.S. cents.
At first glance, the Canadian dollar appeared to be unaffected by the central bank`s statement. The Canadian dollar was up slightly, to 90.33 U.S. cents, as of trading at roughly 9:40 a.m. ET, after falling more than 2 U.S. cents in the previous day.
In a note released prior to the bank`s rate announcement, economists from the Bank of Nova Scotia said it expected the dollar to march toward parity with the U.S. greenback sometime in 2010.
Read the full article here.