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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 U.S. dollar.

Mackenzie Investments chief economist and strategist Alex Bellefleur suggested the currency initially lost steam because investors may have been expecting the Bank of Canada to strike a more hawkish tone. The statement was ultimately a neutral one, but Bellefleur believes investors may have initially put more emphasis on the language surrounding trade tensions.

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“The reason for the drop is perhaps the market may have been bracing for a more hawkish statement that would’ve put slightly less emphasis on trade and things like this,” he said. “If the Bank of Canada had been more forceful … I think that’s what the market was looking for.”

The BoC’s forecast for economic growth in 2020 was cut to 1.9 per cent from 2.1 per cent. 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.