Poloz Boosts Canadian Dollar with Rate Rise Comments

The Pound to Canadian Dollar fell over half a percent on Wednesday to 1.6820 after the governor of the Bank of Canada (BOC) said the Bank’s hitherto low interest rates had “done their job” and the Bank would be revisiting the possibility of increasing interest rates at its next meeting on July 12.

Interest rates are a major driver of currencies with high rates pushing up the value of a currency as the attract more foreign capital and vice versa for low rates.

Poloz said the ‘excess slack’ in the Canadian economy, by which he means high unemployment and underutilisation of resources, is now being absorbed “steadily,” and that must be taken into account when the central bank issues a rate decision next month.

The comments issued from a CNBC interview in which the governor said that growth had been, “really strong” in the 4 months at the start of the year, especially in Q1.

He said although growth was expected to “moderate” after Q1’s steep rise it would still remain “above potential.”

Of interest rates, which currently stand at 0.50%, Poloz said, “they are extraordinarily low,” adding, “it does look like those cuts have done their job.”

He went on to suggest a rise might be on the table at the next BOC meeting to set interest rates.

“We need to be at least considering that whole situation now that excess capacity has been used up,” he said.

When asked about the risk from the falling price of oil, Poloz said that it was not as great as some might think since the BOC assumed oil in the 40-50 dollar long-term average zone for its calculations, which is where it is now.

This was distinct from the oil price shock of a few years ago when oil suddenly plunged over 50 dollar per barrel to lows of 35 dollars a barrel.

Poloz’s comments backed-up recent statements from the deputy governor of the BOC Carolyn A. Wilkins in which she questioned whether interest rates needed to remain as low as they are for much longer.

Our weekly technical forecasts were accurate in predicting more weakness for GBP/CAD, which is expected to fall to a target at 1.6600 and then 1.6500 eventually.