The Canadian, Australian and New Zealand dollars all suffered sharp losses today. The Bank of Canada left interest rates unchanged at 4.5 percent.
Even though they felt that commodity prices were strong and that the Canadian economy is operating above their previously expected production potential, their monetary policy bias is still neutral with a slight tilt to the downside. The Bank of Canada revised down their 2008 and 2009 growth forecasts because of the potential impact of a stronger Canadian dollar. We have already seen manufacturing shipments fall sharply in the month of August. The Bank of Canada’s outlook on inflation is balanced because they felt that the capacity pressures brought on by a tight labor market should ease more rapidly. The central bank is expected to leave interest rates unchanged for the remainder of the year. Wholesale trade is due for release tomorrow; this is generally a good leading indicator for retail sales. There will be no Australian or New Zealand economic data to be release over the next 24 hours.
Written by Kathy Lien, Chief Currency Strategist for DailyFX.com