Canadian dollar flat ahead of Bank of Canada interest rate announcement

TORONTO – The Canadian dollar was little changed ahead of the Bank of Canada’s scheduled announcement on interest rates.

The loonie was off 0.01 of a cent to 98.54 cents US. Analysts say the bank will keep its key rate unchanged at one per cent, reflecting reluctance to raise Canadian borrowing costs amid slowing global economic conditions.

Traders will be particularly interested in clues as to when the central bank may start hiking rates.

The bank signalled an eventual tightening bias in their most recent announcement in June, indicating that rates would rise at some point. Some analysts expect the bank to adopt a more neutral tone.

But Mark Chandler, Head of Canadian FIC Strategy at RBC Dominion Securities, thought the bank could “hang on to their ‘eventual’ tightening bias until they see how policy developments abroad and financial conditions unfold before their September meeting.”

Markets got a sharp reminder of deteriorating growth Monday as data showed U.S. retail sales fell in June for the third straight month. Also, the International Monetary Fund shaved its estimate for global growth for this year and next. And the IMF warned that Europe’s financial crisis and a potential budget crisis in the United States could slow world growth even further next year.

Hopes are growing that a recent spate of disappointing data will persuade central bankers to embark on more stimulus.

Traders hoped that U.S. Federal Reserve chairman Ben Bernanke would announce further measures in a speech later in the morning.

Commodity prices were mixed with the August crude contract on the New York Mercantile Exchange ahead 25 cents to US$88.68.

Copper was unchanged at US$3.49 a pound while bullion dipped 80 cents to US$1,590.80 an ounce.