TORONTO: The Canadian dollar strengthened against the greenback on Wednesday after the Bank of Canada repeated its neutral policy stance, even as it highlighted new concern over the stretched household sector.
The loonie had already been trading higher heading into the statement, benefiting from stronger risk appetite in broader markets as investors were hopeful for a de-escalation of tensions between Ukraine and Russia.
But the currency extended gains to hit a session high following the Bank of Canada statement, which analysts said was slightly less dovish than expected.
"What we have is a fairly neutral statement overall," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.
Without an accompanying press conference from Governor Stephen Poloz, markets didn't get a chance to hear what is usually a more dovish tilt from the head of the central bank, said Sutton.
The central bank's comments on the household sector also grabbed the market's attention as it said the risks associated with household imbalances have not diminished and dropped previous references to the constructive evolution of household imbalances and a soft landing in the housing market.
Those remarks could be interpreted as having a slightly hawkish undertone, but shouldn't change the view on interest rate policy, analysts said.
"It does highlight that they are paying attention to those financial stability risks but I think we're a long way from actually threatening an interest rate hike on the back of them," said Sutton.
"I think they're just highlighting them as a concern at this point, but they do reemphasize that the balance of risks are still within their comfort zone."
The Canadian dollar was at C$1.0875 to the greenback, or 91.95 US cents, stronger than Tuesday's close of C$1.0930, or 91.49 US cents. The statement sent the currency pairing through the 200-day moving average of C$1.0893, which had been seen as near-term support.
The loonie had gained alongside other asset classes after Ukraine said its president had agreed with Russia's Vladimir Putin on steps towards a "ceasefire regime" in Kiev's conflict with pro-Russian rebels. Putin said a deal to end fighting in eastern Ukraine could be reached this week.
The news was providing "a reason for this flight out of safety and Canada is benefiting a bit," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto.
"I don't know if it's going to necessarily have a lasting impact but it looks like the market was looking for a relief from that."
Canadian government bond prices were mostly lower across the maturity curve, though the two-year was unchanged to yield 1.128 percent. The benchmark 10-year was down 12 Canadian cents to yield 2.107 percent.
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