Canadian Dollar Drops As BoC Holds Rates Steady

The Canadian dollar fell against its major counterparts in the New York session on Wednesday, as the Bank of Canada kept the key rate unchanged and said it is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation.

The BoC held its target for the overnight rate at 5 percent, with the bank rate at 5.25 percent and the deposit rate at 5 percent. The Canadian central bank is also continuing its policy of quantitative tightening.

The bank expects consumer price inflation to remain close to 3 percent during the first half of this year before gradually easing, returning to the 2 percent target in 2025.

"While the slowdown in demand is reducing price pressures in a broader number of CPI components and corporate pricing behaviour continues to normalize, core measures of inflation are not showing sustained declines," the Bank of Canada said.

Meanwhile, the bank said Canadian economic growth will likely remain close to zero through the first quarter before strengthening gradually around the middle of the year.

Overall, the Bank of Canada forecasts GDP growth of 0.8 percent in 2024 and 2.4 percent in 2025, roughly unchanged from its October projection.

The loonie touched 108.88 against the yen and 0.8908 against the aussie, setting 8-day lows. The loonie is poised to find support around 106.00 against the yen and 0.905 against the aussie.

The loonie weakened to a 6-day low of 1.4705 against the euro and a 5-day low of 1.3494 against the greenback, from an early high of 1.4593 and a 2-day high of 1.3429, respectively. The loonie is seen finding support around 1.48 against the euro and 1.38 against the greenback.