Forex - USD/CAD hits 11-week low after BoC rate decision

Investing.com – The U.S. dollar was down against its Canadian counterpart on Tuesday, dropping to an eleven-week low after the Bank of Canada signaled that it could raise rates in the near-term to counter accelerating inflation.

USD/CAD hit 0.9491 during U.S. morning trade, the pair’s lowest since May 3; the pair subsequently consolidated at 0.9499, tumbling 1.03%.

The pair was likely to find support at 0.9457, the low of May 3 and resistance at 0.9635, Monday’s high.

The Bank of Canada announced earlier that it left its benchmark interest rate unchanged at 1.00% in a widely expected move.

In its accompanying rate statement, the BoC said that the Canadian economy was expanding largely as projected in its April Monetary Policy Report, with growth of 2.8% expected for 2011 and 2.6% in 2012.

Inflation was expected to remain above 3% in the near term, while core inflation was slightly firmer than anticipated, owing to temporary factors and to more persistent strength in the prices of some services.

“To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be withdrawn, consistent with achieving the 2% inflation target,” the bank’s rate statement said.

Canadian consumer prices rose at an annualized rate of 3.7% in May, the fastest pace since 2003.

The loonie was also supported as crude oil for delivery in September jumped 1.5% to hit USD97.78 a barrel on the New York Mercantile Exchange.  

Raw materials, including oil account for about half of Canada’s export revenue.

The Canadian dollar was also higher against the euro, with EUR/CAD shedding 0.73% to hit 1.3447.

Earlier in the day, official data showed that U.S. building permits rose unexpectedly in June, while housing starts rose more-than-expected.