Loonie slightly lower after Bank of Canada clarifies interest rate outlook

The Canadian dollar (loonie) is pictured in Vancouver, Sept. 22, 2011. THE CANADIAN PRESS/Jonathan Hayward

July 18, 2013 - 6:00 AM

TORONTO - The Canadian dollar was slightly lower Thursday, a day after the Bank of Canada indicated it was in no hurry to raise its key rate from one per cent, where it has rested for almost three years.

The loonie was down 0.04 of a cent to 95.98 cents US.

In its policy statement, the central bank dropped the reference that interest rates are likely to remain unchanged for a period of time. Instead, the bank’s new governor, Stephen Poloz, made clearer that he intends to make no changes as long as considerable slack remains in the economy, inflation remains muted and household finances continue to improve.

"Yesterday Governor Poloz’s first interest rate statement, Monetary Policy Report and associated press conference removed much of the uncertainty that has clouded the BoC outlook over the last several months and maintained a slight hawkish bias," observed Scotia Capital chief currency strategist Camilla Sutton.

Traders will also take in a second day of testimony from U.S. Federal Reserve chairman Ben Bernanke.

He told lawmakers Wednesday that the Fed’s timetable for reducing its bond purchases was not decided and that the central bank could even boost them if the economy fails to meet expectations.

He reiterated that the Fed wants to see substantial progress in the job market before scaling back its $85 billion a month in purchase of government bonds and other financial assets.

Sutton said Bernanke's comments were "fairly dovish."

"However, we do not expect the Fed to fully convince markets that tapering quantitative easing combined with a pushing out of interest rate expectations maintains the same level of accommodation."

On the commodity markets, benchmark crude for August delivery was ahead 28 cents at US$106.76 a barrel on the New York Mercantile Exchange after gaining 48 cents on Wednesday.

Despite cooling economic growth in China, the price of oil was underpinned by another sizable decline in U.S. oil supplies. The U.S. crude inventory fell by 6.9 million barrels last week, bringing the three-week decline to 27.1 million barrels.

Copper prices were unchanged at US$3.12 a pound while August bullion gained $7.10 to US$1,284.60 an ounce.