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Bank of Canada Maintains Target Interest Rate at 1.00%

Bank of Canada Maintains Target Interest Rate at 1.00%

Tzu-Wen Chen, Technical Strategist

THE TAKEAWAY: [Bank of Canada Maintains Target Rate at 1.00%, ] > [Modest growth forecasted] > [CAD/USD, CAD/EUR bearish]

The Bank of Canada (BoC) announced its decision to maintain its target for the overnight rate at 1.00 percent, which has been unchanged since September 2010, when the rate was increased by 25 bps from 0.75 percent. The Bank Rate is correspondingly 1.25 percent and the deposit rate is 0.75 percent. The BoC estimated that the economy grew by 2.4 percent in 2011 and projects that it will grow by 2.0 percent in 2012 and 2.8 percent in 2013. While the BoC continues to highlight significant external downside risks due to the sovereign debt crisis in Europe, the economy is anticipated to return to full capacity by the third quarter of 2013, one quarter earlier than was expected in the October Monetary Policy Report (MPR).

With the target interest rate near historic lows and the financial system working well, the BoC has determined “there is considerable monetary policy stimulus in Canada”.

USD/CAD1-minute Chart: January 17, 2012

Bank_of_Canada_Maintains_Rate_at_1.00_percent_body_Picture_1.png, Bank of Canada Maintains Target Interest Rate at 1.00%

Chart created using Strategy Trader – Prepared by Tzu-Wen Chen

At the time of the release, the CAD firmed 10 pips against the USD. However, the trend quickly reversed with the USD/CAD giving back the recent decline from earlier this month as market participants raised bets for additional monetary support.

EUR/CAD1-minute Chart: January 17, 2012

Bank_of_Canada_Maintains_Rate_at_1.00_percent_body_Picture_4.png, Bank of Canada Maintains Target Interest Rate at 1.00%

Chart created using Strategy Trader – Prepared by Tzu-Wen Chen

A similar initial reaction was seen as the CAD gained 9 pips against the Euro before retracting and flattening out against the Euro.

--- Written by Tzu-Wen Chen DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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