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Bank of Canada keeps key interest rate on hold

Canadian central bank, the Bank of Canada, maintained its key interest rate at 1.50 percent today, coming in line with expectations. The accompanying statement saw a slightly hawkish note, suggesting that the next rate hike might come soon, noted TD Economics in a research report.

The Canadian economy has been shaping up in line with the central bank’s July projections, and although a slowing of growth is likely in the third quarter, the Bank links this to fluctuations in energy and exports. Significantly, the central bank sees the rotation of demand towards business investment and exports as proceeding.

The U.S. economy is seen as “particularly robust”, although trade tensions continue to be a risk. The statement had little to say on NAFTA other than a reminder that Bank of Canada staff is closely observing the situation. Emerging market developments are seen as having restricted spillovers.

At the core of the bank’s mandate is inflation, and it continues to be an unchanged story for the bank. The recent rise to 3 percent is seen as temporary, and a return to the 2 percent target is seen by early 2019. The statement once again characterized their core measures as indicating to an economy that continues to operate near capacity.

BoC ended by noting that higher interest rates would be required, but that a gradual approach will be taken – the same language introduced in May’s statement that presaged a hike in July.

“The Bank has been marking down its growth outlook to account for trade uncertainty – any resolution on the NAFTA front is thus likely to mean a stronger outlook, and by extension, a faster pace of hikes, all else equal”, stated TD Economics.

At 18:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was bearish at -80.0723, while the FxWirePro's Hourly Strength Index of US Dollar was bullish at 78.0228. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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