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USD/CAD surges on Bank of Canada official’s speech

Loonie hits six week low as Deputy Governor Wilkins addresses Montreal finance group. Greenback climbs as Canadian monetary policy seen possibly leaning dovish after holding rates firm while US Federal Reserve has eased.

After a speech that reaffirmed a neutral to dovish tilt in Canada’s monetary policy, USD/CAD surged in afternoon North American trade.

Speaking Tuesday afternoon to the Finance Club of Montreal, Bank of Canada (BoC) Deputy Governor Carolyn Wilkens said there is room for the central bank to lower rates if necessary, alluding to the fact that the central bank has sat on the sidelines over the last year while the US Federal Reserve has steadily lowered rates.

The Bank of Canada’s official rate, the Bank Rate, stands at 1.75%, while the US Federal Funds rate is trading around 1.5%. Canada’s relatively high interest rates have supported the Loonie throughout the year, climbing against the greenback by about 3% since January.

Loonie slides

The US dollar rose by as much as 65 pips against the Loonie Tuesday, climbing sharply as Deputy Governor Wilkens began speaking in the early afternoon. In late New York trading USD/CAD was trading around $1.3265.

As is often the case, the BoC has had to walk a tightrope between diverging regional economic performances in Canada’s vast territory.

Ontario powerhouse

Economic powerhouse Ontario has been doing well, with Southern Ontario, particularly Toronto, coming strongly out of a sharp 2015/2016 real estate slump. Construction in Toronto is booming, with over 120 cranes gracing its skyline, more than New York, Los Angeles, Seattle and Boston combined.

So, while the BoC must keep a watchful eye out for possible overheating in Ontario, its relatively tight monetary policy is producing groans in Alberta’s oil dependent economy. The western province’s economy has fallen into a mild recession this year – expected to contract by about 1% - as big delays in construction of oil pipelines related to its huge Tar Sands oil deposits have caused uncertainty.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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