Canadian dollar pulls back as central bank forgoes hawkish shift

  • Loonie touches strongest level since Nov. 19 at 1.2609
  • Bank of Canada holds key interest rate at 0.25%
  • Price of oil settles 0.4% higher
  • Canadian bond yields ease across steeper curve

TORONTO, Dec 8 (Reuters) - The Canadian dollar edged lower against the greenback on Wednesday as the Bank of Canada disappointed some investors that had expected a shift to a more hawkish stance, with the currency pulling back from its strongest level in nearly three weeks.

The BoC held its benchmark interest rate at 0.25%, as expected, and maintained its guidance that a first interest rate hike could come in April 2022, saying that "devastating floods" in British Columbia last month and the emergence of the Omicron coronavirus variant could hinder economic activity.

"The Canadian dollar mildly weakened on the back of the release as there was no material upgrade to the Bank's October projections in the statement," Simon Harvey, senior FX market analyst for Monex Europe and Monex Canada, said in a note.

"Growth risks brought about by the latest COVID variant and the recent British Columbia crisis meant policymakers kept a fairly noncommittal tone."

Investors were on guard for a hawkish shift after recent domestic data showed strength in inflation, employment and gross domestic product growth.

Money market rates eased between 8 and 10 basis points after the policy decision, with investors expecting the first hike to come in March or April.

The Canadian dollar was trading 0.1% lower at 1.2647 to the greenback, or 79.07 U.S. cents. Earlier, it touched its strongest intraday level since Nov. 19 at 1.2609 as fears eased about the economic impact of the Omicron variant.

World shares (.WORLD) and the price of oil, one of Canada's major exports, have rebounded in recent days after being battered last week by concerns that the new coronavirus variant could derail the global economic recovery.

U.S. crude prices settled 0.4% higher on Wednesday at $72.36 a barrel. read more

Canadian government bond yields were lower across a steeper curve. The 2-year rate fell 7.7 basis points to 1.073%, while the 10-year was down 2.2 basis points at 1.558%.

Reporting by Fergal Smith Editing by Nick Zieminski, Bernadette Baum and Paul Simao

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