BUSINESS

Loonie rises a day before Bank of Canada makes next interest rate announcement

10/22/2012 08:40 EDT | Updated 12/22/2012 05:12 EST
TORONTO - The Canadian dollar closed slightly higher a day before the Bank of Canada makes its next announcement on interest rates.

The loonie shook off early declines to move up 0.07 of a cent to 100.75 cents US.

There isn't any doubt about what the Canadian central bank will do about interest rates — it's widely expected the bank will leave its key rate unchanged at one per cent.

But there is speculation about what the bank will have to say about raising rates in the future. And that means its statement Tuesday morning will be carefully scrutinized for small changes in wording.

"After Governor Carney’s dovish speech on October 15th, markets are increasingly pricing in the risk that the bank shifts from hawkish to neutral by omitting the reference that 'some modest withdrawal of the present considerable monetary policy stimulus may become appropriate'," said Scotia Capital chief currency strategist Camilla Sutton.

Traders also digested an announcement Friday that the federal government has rejected a Malaysian state-owned energy giant's proposed takeover bid for Calgary-based natural gas producer Progress Energy Resources (TSX:PRQ). Petronas had offered some $6 billion for Progress, but Industry Minister Christian Paradis said he was "not satisfied that the proposed investment is likely to be of net benefit to Canada."

Some analysts thought this didn't bode well for other acquisitions by state-owned energy companies.

"The recent rejection of the Petronas acquisition of Progress is a negative signal for foreign takeovers," said Rahim Madhavji at Knightsbridge Foreign Exchange in Toronto.

"Generally, these foreign takeovers are loonie positive as a large chunk of loonies need to be bought for the deal."

Commodity prices also weighed as the November crude contract on the New York Mercantile Exchange fell $1.32 to US$88.73 as barrel.

December bullion gained $2.30 to US$1,726.30 an ounce while December copper was down two cents at US$3.62 a pound on top of a 10 cent slide on Friday.