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Briefing highlights

  • Loonie slumps after Bank of Canada
  • Central bank holds key rate steady
  • Markets at a glance
  • Air Canada profit more than doubles
  • Visa profit rises 11 per cent
  • TransCanada to sell Ontario solar assets

Loonie slumps

The Canadian dollar is slumping fast after the Bank of Canada held the line and signalled a slow pace of interest rate increases.

The loonie took a mighty tumble after the central bank held its benchmark rate steady at 1 per cent and pointed toward a slower pace of economic growth in the second half of the year.

As The Globe and Mail's Barrie McKenna reports, the central bank said "less monetary stimulus will likely be required over time" and that governor Stephen Poloz and his colleagues would "be cautious in making future adjustments to the policy rate.

Having traded as high as almost 79 cents earlier in the day, the currency slumped to 78.2 cents after the central bank's report.

"A dovish statement from the BoC this morning underlines the biggest risk to CAD at the moment - that the market is far too optimistic," said Bipan Rai, executive director of macro strategy at CIBC World Markets, referring to the Canadian dollar by its symbol.

"That's evident from the amount of net longs in the futures market and the sentiment expressed in the options market," he added.

"There's definitely room for the CAD to weaken here with USD/CAD heading toward the 1.28-to-1.30 area."

What he meant by that is a loonie versus the U.S. dollar at between about 77 cents and 78 cents.

"We are now projecting the BoC to next raise rates in April," Mr. Rai said. Mr. Rai added that the central bank's "repeated references to the CAD weighing on both inflation and exports was enough" to send the loonie lower against the greenback.

Some analysts had been wondering whether today's decision and monetary policy report would point toward a rate hike in December, but that now appears off the table at this point.

The Bank of Canada is still optimistic about the economy, but is still concerned over negotiations for a revamped North American free-trade agreement.

Those talks have soured, and President Donald Trump has threatened to rip it off.

"This less aggressive stance on interest rates partly reflects concerns over NAFTA renegotiations and, to a lesser extent, the stronger Canadian dollar," said David Madani, senior Canadian economist at Capital Economics.

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