Canada’s Dollar Rallies from Five-Year Low on Central Bank’s Sentiments

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Canada’s Dollar Rallies from Five-Year Low on Central Bank’s SentimentsThe Canada’s dollar rebounded from its lowest level in nearly five years after the Bank of Canada reported that the economy is now shifting to one led by business investment and exports.

The loonie rose 0.5 percent to trade at C$1.1355 per U.S. dollar as of 11:12 a.m. in Toronto. It had earlier declined to C$1.1418 after touching C$1.1467 on Nov. 5, its lowest level since July 2009. The currency surged despite the central bank’s decision to retain the benchmark interest rate at 1 percent.

Economists believe that while falling prices of crude, Canada’s largest export, may hamper increases in consumer prices, a weaker Canadian dollar and strong U.S. economic growth may boost the economy.

“What they’ve done is wiped away some of the dark clouds hanging over the economic forecasts, and basically you’re seeing the beginning of a rainbow here,” Brad Schruder, a Toronto-based director of foreign exchange at Bank of Montreal, told Bloomberg News. “The output gap is shrinking faster than expected, inflation is stronger than originally forecast and economic underpinnings are supportive.”

The country’s five year government bonds dropped, causing yields to increase two basis points to 1.47 percent, while yields on the 10-year bonds remained slightly unchanged at 1.96 percent.

Meanwhile, the euro fell to its lowest level in two years against the dollar amidst calls for the European Central Bank to boost stimulus due to slowdown in the euro area’s economy. The 18-nation currency slid 0.6 percent to steady at $1.2311 at 11:51 a.m. in New York, hitting its lowest level since August 2012. The euro fell 0.1 percent to 147.47 yen. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com