Loonie loses gains after Bank of Japan's surprise move to lower interest rate

TORONTO -- Canada's dollar has reacted negatively to a surprise announcement by Japan's central bank, which is moving to offset dangerously low inflation by dropping a key lending rate to negative 0.1 per cent.

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The loonie's value fell sharply just after 5 a.m. ET. It had traded as high as 71.58 cents US before the Bank of Japan's announcment but was lower, at 71.06 cents US, about two hours before North American stock markets open at 9:30 a.m.

Canada's dollar finished Thursday at 71.18 cents US, it's highest close since Jan. 5.

Both the loonie's low value and Japan's low inflation rate are symptoms of the decline in global oil prices, caused by an oversupply, low economic growth and the relatively strong value of the U.S. dollar against other currencies.

The price of a benchmark barrel of crude oil briefly jumped above US$34 a barrel after the Bank of Japan's announcement but was up only marginally from Thursday's close later in the morning. The March futures contract was at US$33.47 before North American stock markets opened, up from Thursday's settlement price of US$33.22.

Stock markets and index futures reacted positively the the Bank of Japan's move, which effectively means that the central bank will receive interest -- rather than pay interest -- on deposits from commercial banks.

The Dow Jones index futures were up 125.18 points at 16,069.64, S&P 500 futures advanced 10.41 points to 1,893.36 and the Nasdaq futures gained 38.51 points to 4,506.68.

European indexes were also positive and major Asian markets closed higher.



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