USD/CAD Loonie Rangebound As BOC’s Poloz Praises US Recovery

Bank of Canada Governor Stephen Poloz was in New York to participate in the Bloomberg Americas Monetary Summit. He followed Federal Reserve Bank of New York President William Dudley who was confident the U.S. central bank would hike interest rates before the end of the year. Governor Poloz praised the work of the Federal Reserve in handling the credit crises and its effort to normalize its monetary policy. The Canadian central banker praised the fundamentals of the U.S. economy and mentioned that a growing risk is the potential outperformance of the U.S.

Governor Poloz said that the surprise January interest rate cut is “about right” for the Canadian economy. The comments have put another rate cut year out of the question, unless economic data worsens forcing the hand of the Bank of Canada. Poloz was seen as very optimistic both of the growth of the U.S. economy, but also about the Canadian economy closing the gap.

Energy prices have stabilized and even though there are multiple signals of oversupply the market has bought crude. The governor of the BOC seems confident in a U.S. recovery having a positive spill over effect in Canada, one of its biggest trading partners. This view is nothing new as it was presented in the quarterly monetary policy report published last week by the Bank of Canada. The report supports the “transitory” effects of lower oil prices which appear to be dissipating and favours the Canadian economy getting a competitive edge of its weaker currency.

The USD/CAD pared some of the gains from last week when it broke under the 1.22 price level. The loonie appreciated after Governor Poloz’s comments but without economic data the currency continues to trade in a tight range ahead of tomorrow’s release of next year’s federal budget. The budget is expected to be balanced with a 2 percent growth forecast for the Canadian economy.

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