Big USD/CDN volatility as divergence of Fed and BoC monetary policies reaching crisis levels
US jobs rocket higher, Canada jobs in biggest tumble in more than a decade. BoC governor in surprise move refuses to seek a second seven-year term.
Canada’s high interest rate policies, a feature of a country that traditionally has been a massive net importer of capital, are being put to the test after a divisive national election that more than ever have highlighted the fractious regional political relations that historically have threatened the Canadian federal bargain.
The difficulty of the job of walking the Bank of Canada’s (BoC) high interest rate, high wire act came into stark relief on Friday when in an unusual move BoC Governor Stephen Poloz said he would not seek a second seven-year term, opening the door for Deputy Governor Carolyn Wilkins, who if confirmed by parliament would be the nation’s first female BoC governor.
Interest rate high wire act
The Poloz announcement came on Friday after Statistics Canada announced that Canada’s jobs market has been decimated in the last two months, with November seeing a huge loss of over 70,000 jobs, the largest monthly decline in ten years. The Canada jobs news was in stark contrast to the US, where there was a huge, surprise 266K jump in “non-farm payrolls.”
There is big uncertainty about the next BoC rate move. The BoC quite controversially left rates unchanged last week, with the official Bank Rate still at 1.75%, a big pickup from the US Fed Funds Rate which the US Federal Reserve (Fed) has been cutting all year and stands at 1.5%. The BoC in contrast has left rates pat since April, creating a wide interest rate spread needed for Canada's big capital imports.
USD/Cdn was massively volatile late in the week as some in the market thought Poloz might relent and lower rates, especially in view of one of the worst jobs data reports in recent Canadian history. Daily 100+ pip moves in the last two trading sessions reflected wildly gyrating interest rate expectations.
The BoC failure to ease was bound to infuriate politicians in the western provinces, especially in the province of Alberta, which is experiencing a mild recession driven by climate opposition to pipelines designed to unlock the riches of Alberta’s giant Tar Sands oil deposits.
Prime Minister Justin Trudeau has vowed to plow through opposition to the pipelines, but in fact Trudeau owes the western provinces other than BC pretty much zero, his Liberals failing to win a single parliamentary seat west of Ontario in the latest election.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Start trading forex today
Trade the largest and most volatile financial market in the world.
- Spreads start at just 0.6 points on EUR/USD
- Analyse market movements with our essential selection of charts
- Speculate from a range of platforms, including on mobile
Live prices on most popular markets