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Loonie rises as Bank of Canada leaves key rate unchanged at one per cent

TORONTO - The Canadian dollar closed higher Wednesday as the Bank of Canada announced it was leaving its key rate unchanged at one per cent.

The loonie rose 0.51 of a cent to 90.6 cents US amid general American currency weakness. The bank's key rate has been unchanged since September 2010 amid a slow global recovery from the 2008 financial crisis and subsequent recession.

The currency moved slightly off the highs of the morning after Quebec Premier Pauline Marois confirmed that Quebecers will vote in a general election on April 7. The separatist-minded Marois is aiming for a majority mandate as the perceived front-runner, thanks to her government’s controversial-yet-popular secularism charter.

The Bank of Canada also made no changes to its neutral bias stance, meaning it believes the next policy move could equally be either a hike in rates or a cut.

"In the near term, both growth and inflation are likely to decelerate because of one-off factors, although we expect the data to return to a stronger path thereafter," said RBC economist Dawn Desjardins.

"This is likely to keep the Bank sidelined until there is clear evidence that both the economy and inflation are accelerating."

The bank noted that the global economy is evolving largely as anticipated, with growth expected to strengthen in 2014 and 2015. But it also said tensions in Ukraine have added to geopolitical uncertainty.

Markets had started the week off with losses after Russian troops invaded Ukraine's Crimean peninsula over the weekend. Russia has key military installations there and many people are Russian- speaking.

But markets calmed down Tuesday after Russian President Vladimir Putin ordered Russian troops participating in military exercises near Ukraine’s border to return to their bases. He also said he hoped that Russia, which does not recognize the new Ukrainian leadership, won’t need to use force in eastern Ukraine.

On Wednesday, the European Union announced it was proposing to provide Ukraine an 11-billion-euro aid package in loans and grants over the coming years.

There was also a disappointing read in U.S. private sector job creation in February. Payroll firm ADP reported the private sector created 139,000 jobs last month, short of the 160,000 that had been expected.

The data came out two days before the release of the U.S. government's jobs report. Economists expect that, overall, the economy created a net 150,000 public and private sector jobs in February.

Canadian jobs data also comes out Friday with the expectation that the economy cranked out about 19,000 jobs last month.

On the commodity markets, April crude in New York declined $1.88 to US$101.45 a barrel.

May copper was down a cent at $3.20 a pound while April gold bullion gained $2.40 to US$1,340.30 an ounce.

The Canadian Press


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