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Canadian dollar drops nearly a cent after Bank of Canada rate decision

TORONTO - The Canadian dollar pulled back nearly a full cent after the Bank of Canada's decision to keep its key interest rate steady while lowering its forecast for inflation.

The loonie dropped 0.95 of a cent to settle at 90.19 cents US.

The central bank said inflation has been lower than expected and won't return to its ideal target of two per cent until 2016 — even though the domestic economy has shown signs of improvement.

Both competition in the retail industry and a lack of significant economic growth were cited as reasons for inflation remaining below target.

The commentary added pressure to the Canadian currency, which has already lost more than three cents U.S. since the end of 2013.

Disappointing trade and employment data has coupled with pressure from the U.S. dollar, which has risen as the U.S. Federal Reserve starts to cut back on its key stimulus measure, the massive monthly bond purchases that have kept long-term rates low.

"As expected, the (Bank of Canada) statement retains a broadly dovish flavour, although the bias as before remains broadly balanced between a possible rate reduction and potential increase," CIBC economist Peter Buchanan wrote in a note.

In commodities, the February gold bullion contract slipped $3.20 to US$1,238.60 an ounce.

The March crude oil contract on the New York Mercantile Exchange gained $1.76 to US$96.73 a barrel.

The Canadian Press


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