Canadian dollar tracks oil higher; BoC skips changing rate guidance

TORONTO: The Canadian dollar edged higher against its US counterpart on Wednesday as oil prices rose, and after the Bank of Canada said the economy was stronger than expected but stopped short of adjusting forward guidance on interest rates and bond purchases.

The central bank revised to positive its outlook for GDP growth in the first quarter, saying Canada's economy was proving more resilient to a second wave of COVID-19 than expected.

Still, it left its benchmark interest rate unchanged at a record low of 0.25% and said it would stay there until economic slack is absorbed, which in its January projection does not happen until into 2023.

The market has been betting that the BoC would tighten as soon as next year, with the first hike coming ahead of the Federal Reserve.

"We don't see that in the data and it would be to the Bank of Canada's detriment to go first because it would make the currency stronger," said Darcy Briggs, a portfolio manager at Franklin Templeton Canada.

"That doesn't help our case. That's a tightening of financial conditions, given that we are supposed to be relying on exports as a growth driver."

The Canadian dollar was trading 0.2% higher at 1.2615 to the greenback, or 79.27 US cents, having traded in a range of 1.2613 to 1.2683. Last month, the loonie touched a three-year high at 1.2464.

Data showing tame US underlying inflation boosted Wall Street, while the price of oil, one of Canada's major exports, was supported by an upbeat forecast for global economic recovery. US crude prices settled 0.7% higher at $64.44 a barrel.

On Monday, it touched its highest level since January 2020 at 1.545%.