TORONTO - The Canadian dollar was higher Tuesday after the Bank of Canada announced it was leaving its key interest rate unchanged at one per cent.
The loonie was ahead 0.42 of a cent to 98.77 cents US.
The bank was widely expected to leave rates alone amid slowing global economic conditions and uncertainty surrounding the future of the eurozone because of the European government debt crisis.
The bank said in a statement that those pressures haven't let up, indicating it was in no rush to hike rates.
"Uncertainty around the global economic outlook has increased in the weeks since the bank released its October Monetary Policy Report," the central bank said.
"Conditions in global financial markets have deteriorated as the sovereign debt crisis in Europe has deepened."
On a brighter note, the bank said growth in the U.S. has been better than expected, although spillover effects from the European debt crisis are expected to put pressure on the U.S. economy.
"On balance, the Bank of Canada is still tightly perched on a neutral bias," said Doug Porter, deputy chief economist at BMO Capital Markets.
"There is no hint whatsoever of either impending rate cuts or hikes. We continue to expect the bank to stay on the sidelines through 2012."
Meanwhile, ratings agency Standard & Poor's delivered another helping of bad news.
S&P warned that it may downgrade the European bailout fund's AAA long-term credit rating. It says it could downgrade the rating of the European Financial Stability Facility by one or two notches.
This came a day after the agency said that it was putting 15 of the 17 eurozone countries, including Germany and France, on "credit watch with negative implications."
The S&P announcement Tuesday came just hours after German Chancellor Angela Merkel and French President Nicolas Sarkozy urged changes to the European Union treaty that would centralize decision-making on spending and borrowing for the 17 countries that use the euro.
The proposal is set to form the basis of discussions at the EU summit in Brussels on Friday.
Tighter political and economic co-ordination among eurozone countries is seen as a precursor to further financial aid from the European Central Bank and the International Monetary Fund.
But a tighter union would likely also result in heavier financial burdens for the region's stronger economies, which have already put up billions of euros to rescue Greece, Ireland and Portugal.
S&P said its decision was "prompted by our belief that systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole."
Commodity prices were lower, with the January crude contract on the New York Mercantile Exchange down 35 cents to US$100.64 a barrel.
Copper prices were lower with the March contract on the Nymex down five cents at US$3.57 a pound. News that China was easing lending in order to encourage growth pushed copper prices up almost 10 per cent last week. China is the world's biggest consumer of the metal.
Bullion prices also headed lower with the February contract down $21.10 to US$1,713.40 an ounce.
