TORONTO: The Canadian dollar strengthened on Wednesday after the Bank of Canada said the country's economic recovery is broadening, while it cautioned that plunging oil prices are a risk and that the global economy is still struggling.
The central bank, which held its policy rate unchanged at 1 percent as expected, noted that the impact of stronger Canadian exports was beginning to show in increased business investment and more jobs, but that lower prices for oil and other commodities could have a direct impact in lowering inflation.
The Canadian dollar touched C$1.1346 to the greenback, or 88.14 US cents, following the bank's statement, stronger than Tuesday's close of C$1.1394, or 87.77 US cents.
"The tone of the communique was less dovish than the last several," said Craig Alexander, chief economist at Toronto-Dominion Bank.
"This was almost inescapable given the Bank of Canada had to acknowledge the stronger growth numbers in Canada, the improvement in the US economy, and the increase in inflation that we've had."
Alexander said the caution over the global economy and falling crude prices likely leaves the Bank of Canada in a position to keep interest rates where they are, however.
Also helping the Canadian currency, which was outperforming most of its major counterparts on Wednesday, were firmer oil prices.
Crude prices hit a five-year low earlier in the week after the Organization of the Petroleum Exporting Countries announced last week it would not cut production levels despite a market glut.
Canadian government bond prices were mixed across the maturity curve with short term T-bills higher and longer term bonds mostly lower. The two-year bond fell 4.5 Canadian cents to yield 1.030 percent and the benchmark 10-year slipped 8 Canadian cents to yield 1.966 percent.
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