*Extra* Bank of Canada Catches Market Off Guard With Rate Cut

The 25-basis-point easing fully reverses last summer's tightening.
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The Bank of Canada caught the market off guard, setting a 25-basis-point cut in its key overnight interest rate. With today's cut, the Bank of Canada has completely unwound its 100-basis-point tightening amid the post-Russian collapse crisis last August.

The Canadian dollar was trading below levels that many in the market, including myself, thought provided the Bank of Canada adequate cover. Yet with the

Federal Reserve

on hold, Canadian January GDP a little weaker than expected and inflation practically nonexistent, the Bank of Canada pulled the trigger. The target band for Canada's overnight rate is now 4.5%-5%, down from 4.75%-5.25%. The long end of the Canadian yield curve is slightly firmer in the wake of the decision to cut overnight rates.

The Canadian dollar ticked lower initially, but losses were modest. There is talk of interest in selling the U.S. dollar as it approaches the C$1.5160-C$1.5180 area.

The rate cut may lend modest support to the Canadian equity market today. The

Toronto Stock Exchange

index is up about 1.4% this year in local currency terms and 3% in U.S. dollar terms.

Unless there is a marked slowdown in the Canadian economy, or an unlikely U.S. rate cut, the Bank of Canada would appear to be on hold for a while.

Marc Chandler is an independent global markets strategist who writes daily for TheStreet.com. At the time of publication, he held no positions in the currencies or instruments discussed in this column, though positions may change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at