Canadian dollar drops half a cent after Bank of Canada rate decision

CTV National News: Canadian economy update The Bank of Canada says the recovery is still too fragile for a hike in interest rates. Richard Madan explains how the dollar has been hit.

TORONTO -- The Canadian dollar pulled back nearly a full cent following the Bank of Canada's decision to keep its key interest rate steady, but lower its forecast for inflation.

The loonie dropped 0.8 of a cent to 90.34 cents U.S. near midday.

The central bank said inflation has been lower than expected and won't return to its ideal target until 2016 -- even though the domestic economy has shown signs of improvement.

Both competition in the retail industry and a lack of significant economic growth were cited as reasons for inflation remaining below the Bank of Canada's targets.

The commentary added pressure to the Canadian currency, which has already lost more than three cents U.S. since the end of 2013.

Disappointing trade and employment data has coupled with pressure from the U.S. dollar which has risen as the U.S. Federal Reserve starts to cut back on its key stimulus measure, the massive monthly bond purchases that have kept long term rates low.

"As expected, the (Bank of Canada) statement retains a broadly dovish flavour, although the bias as before remains broadly balanced between a possible rate reduction and potential increase," said CIBC economist Peter Buchanan in a note.

In commodities, the February gold bullion contract slipped $2.30 to US$1,239.50 an ounce.

The February crude oil contract on the New York Mercantile Exchange gained $1.78 to US$96.75 a barrel.