Bank of Canada keeps rate on hold amid worrying signs.

The value of the Canadian dollar slumped against the U.S. greenback Wednesday, driven lower by a Bank of Canada decision to keep the country’s key interest rate unchanged at one per cent.

The Canadian dollar quickly feel from US78.95 cents at 9:55 a.m. to US78.38 cents at 10 a.m. ET, according to data from Bloomberg, following the release of the bank’s decision against another rate hike. By 4 p.m. ET, it had fallen even further, to US78.12 cents.

In announcing its nohike decision, the central bank said the dollar’s recent strength was having an effect on two fronts.

The BoC said it is now projecting inflation to rise to two per cent in the back half of 2018, “a little later than anticipated in July because of the recent strength in the Canadian dollar.”

The bank also said Canada’s economic growth in the second quarter had been surprisingly strong, but added the rate of expansion is expected to tail off in the latter half of 2017. The BoC projected real GDP growth of 3.1 per cent on the year.

“Exports and business investment are both expected to continue to make a solid contribution to GDP growth,” the bank said.

“However, projected export growth is slightly slower than before, in part because of a stronger Canadian dollar than assumed in July.”

The loonie had climbed this year ahead of and after Bank of Canada rate hikes in July and September.

It pushed past US82 cents in September, before falling below US80 cents in October as expectations of another rate hike this month weakened.

Capital Economics’ David Madani said the bank’s dovishness “partly reflects concerns over NAFTA renegotiations and, to a lesser extent, the stronger Canadian dollar.” His firm expects interest rates to be cut next year, to 0.5 per cent.

“That isn’t something that markets are taking seriously at this stage, but they will be next year, with downside risks to the Canadian dollar,” Madani wrote.

Derek Holt, head of capital markets economics at Scotiabank, said the bank’s statement included stronger references to “worries” about the loonie.

“To specifically reference the CAD in a way that signals heightened unease toward currency strength despite the fact that it has backed off its highs should be taken as a clear signal that the BoC was getting nervous about the risks to its inflation mandate when the currency was shooting down to 1.21 USDCAD and that it would be similarly concerned if that were to re-occur,” Holt said in a note.

CIBC Capital Markets economist Nick Exarhos said the central bank wanted to better judge how its earlier quarter-point rate hikes in July and September had affected the economy.

“The Bank of Canada is highlighting that a stronger Canadian dollar is already weighing on their export outlook,” Exarhos said in a note.

“Governor (Stephen) Poloz and Co. go on to say that although the economy could be sitting at a zero output gap currently, a weak trend in wages suggests that slack in the labour market leaves them room to keep rates at accommodative levels.”