Lower Chances for Interest Rate Cut Mean Stronger CAD

The Canadian dollar gained today with the help of rising oil prices as well as yesterday’s speech from the central bank’s chief that made traders reevaluate chances for an interest rate cut.
Stephen Poloz, Bank of Canada Governor, was talking at Western University, London, yesterday. He said that “decision to lower the policy interest rate last month was intended to take out some insurance” against “the risks facing both the outlook for returning inflation sustainably to its target, and the risks to financial stability such as those posed by the indebtedness of Canadian households.” He added:

It gives us greater confidence that we can get back to full capacity and stable inflation by the end of 2016, instead of sometime in 2017, and it will cushion the decline in income and employment, as well as the rise in the debt-to-income ratio, that lower oil prices will bring.

Such comments made some analysts think that the central bank will not cut interest rates at the next week’s policy meeting. Originally, it was thought that the BoC will reduce its main rate from 0.75 percent to 0.50 percent.
Poloz also mentioned the adverse effect of falling oil price on the Canadian economy. Yet crude oil demonstrated a big rally today, muting the impact of this negative factor on the Canadian currency.
USD/CAD dropped from 1.2484 to 1.2434 as of 21:49 GMT today. EUR/CAD went down from 1.4157 to 1.4119, reaching the low of 1.4070 intraday. CAD/JPY advanced from 95.25 to 95.57.

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