Loonie lower as Bank of Canada leaves rates unchanged, lowers growth forecast

TORONTO - The Canadian dollar closed lower Wednesday after the Bank of Canada said it was keeping its key rate unchanged and cut its forecast for first-quarter economic growth.

The loonie was off 0.34 of a cent to 90.76 cents US as the bank left its key rate at one per cent, where it's been since September 2010.

The bank also lowered its forecast for first quarter growth this year to 1.5 per cent, from 2.5 per cent, but attributed the downgrade mostly to temporary impacts of a unusually severe winter.

The bank's Monetary Policy Report, also released Wednesday, said the "lower Canadian dollar should provide additional support" to the economy.

"There wasn't anything especially earth-shattering here, just another pointed reminder that their view is a weaker currency leads to a better growth backdrop," noted BMO Capital Markets chief economist Doug Porter.

Meanwhile, metals rose in the wake of signs that economic growth in China held up better than expected in the first quarter.

The world’s second-largest economy grew at an annualized rate of 7.4 per cent in the January-March period, down from the previous quarter’s 7.7 per cent. It was the weakest growth in China since the 2008-09 global crisis, but there was relief that the figure wasn't as bad as some had feared.

The Chinese government has also indicated it was prepared to take further measures to support growth.

"The government has announced a number of modest stimulus measures in the last month, including an acceleration in rail investment and selective tax cuts, and appears ready to do more, if necessary, to defend its recently reconfirmed 7.5 per cent target for growth in 2014," said CIBC senior economist Peter Buchanan.

"We continue to look for an increase in GDP of about 7.6 per cent this year."

The May copper contract rose five cents to US$3.04 a pound while June gold bullion edged up $1.10 at US$1,301.40 an ounce.

But the May crude contract on the New York Mercantile Exchange shed most early gains as data showed that U.S. inventories rose more than four times the amount expected last week to 10 million barrels. Oil inched up a penny to US$103.76 a barrel.