Investing.com - The Canadian dollar weakened against its U.S. counterpart on Wednesday after the Bank of Canada kept monetary on hold, but said risks to the inflation outlook have tilted to the downside since its July meeting.
USD/CAD rose 0.29% to 1.2880 from around 1.2825 ahead of the announcement.
The BoC said it was leaving its overnight cash rate unchanged at 0.50%, in line with market expectations, as well as keeping the bank rate a 0.75% and the deposit rate at 0.25%.
The BoC noted that global growth in the first half of 2016 was slower than it had projected but expected it to “strengthen gradually” in the remainder of the year.
“While Canada’s economy shrank in the second quarter, the Bank still projects a substantial rebound in the second half of this year,” the bank’s statement said.
Second-quarter growth was hit by the Alberta wildfires in May and by a larger than anticipated drop in exports.
The Canadian central bank further noted that inflation was roughly in line with its expectations.
“On balance, risks to the profile for inflation have tilted somewhat to the downside since July,” the statement said.
“The overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate," the bank said.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at one-and-a-half week lows of 94.80.
The greenback remained on the back foot after a report on Tuesday from the Institute for Supply Management showed that service sector activity slowed in August to its lowest level since early 2010.
The weak data, coming after last week’s lackluster U.S. jobs report clouded the outlook for the U.S. economy and indicated that the Fed may hold off raising interest rates for longer.