Poloz speech: We are content with today's setting of interest rates


"Evidence has been accumulating that ongoing trade tensions are having a material effect on the global economic outlook", the central bank said in a statement.

The loonie took a hit after the Bank of Canada struck a neutral tone and held its interest rate steady at 1.75 per cent, but recovered its momentum by late afternoon to trade above 76.5 cents to the US dollar.

And although trade tensions cloud the future, inflation is on target, the housing market is stabilizing and the central bank believes the economy appears to be returning to potential growth despite lowered projections.

Fallout from the uncertain global trade environment was also reflected in the bank's updated economic projections, which were also released Wednesday in the bank's quarterly monetary policy report.

Meanwhile, Fed Chairman Jerome Powell reinforced expectations the USA central bank will cut interest rates for the first time in a decade at its next monetary policy meeting later this month, saying trade uncertainties and concerns about the global outlook continued to exert pressure on the American economy.

Following temporary weakness in late 2018 and early 2019, Canada's economy is returning to growth around potential, as expected.

The Bank of Canada might not be such an outlier after all.

While chances of an interest rate cut this year by the Bank of Canada rose to 35% from 20% before the interest rate announcement, that fell well short of expected tightening over the same period by the Fed.

The loonie has been rallying since June when U.S. Federal Reserve Chair Jerome Powell struck a dovish tone during a monetary policy update and strongly signalled an upcoming rate cut.

Following the announcement, the Canadian dollar unwound its gains for the day, touching 1.3143 to the USA dollar, or 76.09 US cents.

Impressive hiring, wage increases, and low interest rates are keeping domestic demand buoyant.

Global trade tensions, meanwhile, have escalated, particularly between the US and China, forcing policy makers to mark down their projections for global growth and lower estimates for business investment and exports.

The BoC left its main interest rate unchanged at 1.75%, as was widely expected.

The central bank revised its forecast to an annual rate of 2.3 per cent from 1.3 per cent in April. That conflict is "curbing manufacturing activity and business investment and pushing down commodity prices", the bank said in a statement accompanying its rate decision.

Yet the report also notes that moves by China to restrict canola and meat imports from Canada hurt exports and the ongoing tension between China and the United States is an overarching concern.

The Bank of Canada is unique among its peers in that most data is trending in the right direction.

Sal Guatieri, a senior economist with BMO Capital Markets, said the risks to the Bank of Canada's policies "are more even-handed" than its US counterpart, which could push through more than one cut.