The Canadian dollar declined against the U.S. dollar this morning after the Bank of Canada announced the benchmark overnight rate would be held at one percent for at least another month. The Bank’s statement set the stage for rate increases later in the year however, noting that the economy is expected to grow over the next six months at a faster clip than originally expected.
A major theme in the statement addressed the concern that raising interest rates at this time could lead to further currency appreciation and the negative impact this could have on Canada’s all-important exports. In the past six months, the loonie as the Canadian dollar is known, has gained more than eight percent on the U.S. dollar and with the U.S. accounting for 70 percent of export sales, the Bank was understandably hesitant to implement a rate hike at this time.
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