Loonie dips as Bank of Canada skips changes to forward guidance By Reuters

© Reuters. FILE PHOTO: A Canadian dollar coin, commonly known as the “Loonie”, is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar edged lower against its U.S. counterpart on Wednesday, as the Bank of Canada said the economy was stronger than expected but stopped short of adjusting its forward guidance on interest rates or the amount of bonds it purchases.

The central bank said it now expects positive GDP growth in the first quarter of 2021, rather than the contraction it forecast in January. Still, it left its benchmark interest rate unchanged at a record low of 0.25% and said it would stay there until economic slack is absorbed, which in its January projection does not happen until into 2023.

The market has been betting that the BoC would tighten as soon as next year, with the first rate hike coming ahead of the Federal Reserve.

“We don’t see that in the data and it would be to the Bank of Canada’s detriment to go first because it would make the currency stronger,” said Darcy Briggs, a portfolio manager at Franklin Templeton Canada.

“That doesn’t help our case, that’s a tightening of financial conditions, given that we are supposed to be relying on exports as a growth driver.”

The Canadian dollar was trading 0.1% lower at 1.2648 to the greenback, or 79.06 U.S. cents, having traded in a range of 1.2613 to 1.2683. Last month, the touched a three-year high at 1.2464.

Data showing tame U.S. underlying inflation boosted Wall Street but the price of oil, one of Canada’s major exports, headed lower for a third straight day. prices were down nearly 1% at $63.39 a barrel.

Canadian government bond yields eased across much of the curve, with the 10-year down 1.5 basis points at 1.431%. On Monday, it touched its highest level since January 2020 at 1.545%.

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