Canadian dollar drops after BOC holds rates, reiterates wait-and-see stance

Canada kept interest rates on hold on Wednesday, however, the country’s currency took a leg lower after policymakers remained steadfast in their waitand-see stance despite signs that second-quarter growth will pick up following a weak start to the year.

The Bank of Canada held its benchmark rate steady at a 10-year high of 1.75 per cent, as widely expected. In the accompanying statement, the bank said it was seeing growing evidence that the economic slowdown seen in late 2018 and early 2019 was temporary and that the economy is poised to bounce back this quarter.

But the bank noted even as the domestic economy is recovering, macro-headwinds — in the form of mounting global trade tensions and growing uncertainty over the outlook for global growth — are rising.

“Overall, recent data have reinforced Governing Council’s view that the slowdown in late 2018 and early 2019 was temporary, although

global trade risks have increased,” it said. “In this context, the degree of accommodation being provided by the current policy interest rate remains appropriate.”

The Bank of Canada rattled the market in April when it cut its outlook for growth this year and dropped its previous language on future rate rises.

The dovish turn followed a sudden and dramatic slowdown in the country’s economic growth at the end of 2018, when lower oil prices, slowing household consumption and weaker investment spending knocked the wind out of what had been a resilient run.

The BOC raised rates five times between July 2017 and October 2018. Wednesday’s decision marks the fifth straight time the bank has kept rates on hold.

The Canadian dollar reversed a 0.1 per cent gain to trade down by as much as 0.4 per cent on the news. It briefly hit a five-month low of C$1.3547 before paring back its losses to C$1.3508.