Canadian Dollar Touches 2-Week High as Poloz Keeps Neutral View

The Canadian dollar reached the highest level in two weeks after the Bank of Canada kept its main interest rate unchanged and reiterated that the next move depends on the progress of economic data.

The currency strengthened against the majority of its most traded peers after central bank Governor Stephen Poloz left the benchmark interest rate at 1 percent for the 28th straight meeting. The currency fell to a 4 1/2 year low in January as investors bet on lower interest rates after the central bank said inflation would stay near the bottom of its 1 percent-to-3 percent target band this year and flagged the strong currency as a headwind to exports.

“It’s really a pause in how incrementally dovish the bank has been in recent meetings,” David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit, said by phone from Toronto. “Even though GDP was a bit stronger than they envisioned, they still see exports as underperforming. Inflation was a bit stronger than they forecast, but they still don’t see any change to the dynamics of intense retail competition and considerable excess slack.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.6 percent to C$1.1029 at 5 p.m. in Toronto. One loonie buys 90.67 U.S. cents.

Canada’s inflation rate accelerated the most in 20 months in January, rising 1.5 percent from a year earlier, the most since June 2012 following December’s 1.2 percent pace.

‘Well Balanced’

Canada’s economic growth unexpectedly accelerated in the fourth quarter, with a 2.9 percent pace of annualized growth compared with 2.7 percent in the prior three months. The median economist forecast in a Bloomberg survey called for 2.6 percent growth.

“The overall statement was very well balanced,” Blake Jespersen, managing director of foreign exchange in Toronto at the Bank of Montreal, said by telephone. There is “a slightly less dovish tinge to it with inflation being a little higher than expected, but in our view, this really doesn’t change much in the near term.”

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