TORONTO - The Canadian dollar pulled back more than half a cent following the Bank of Canada's decision to keep its key interest rate steady, but lower its forecast for inflation.
The loonie dropped 0.58 of a cent to 90.56 cents U.S. shortly after the rate decision was announced.
The central bank said inflation has been lower than expected and won't return to its ideal target until 2016 — and that's even though the domestic economy has shown signs of improvement.
Both competition in the retail industry and a lack of significant economic growth were cited as two reasons the central bank believes inflation will remain below targets.
The commentary added pressure to the Canadian currency, which has already lost more than three cents U.S. since the end of 2013.
Disappointing trade and employment data has coupled with pressure from the U.S. dollar which has risen as the U.S. Federal Reserve starts to cut back on its key stimulus measure, the massive monthly bond purchases that have kept long term rates low.
"As expected, the statement retains a broadly dovish flavour, although the bias as before remains broadly balanced between a possible rate reduction and potential increase," said CIBC economist Peter Buchanan in a note.
In commodities, the February gold bullion contract slipped $2.10 to US$1,239.70 an ounce.
The February crude oil contract on the New York Mercantile Exchange gained 87 cents to US$95.84 a barrel.