Canadian Dollar Stable After Tuesday’s Rally

The Canadian dollar was stable against its US counterpart and retreated a bit versus other most-traded currencies on Wednesday after rallying on Tuesday.


Bank of Canada Governor Stephen Poloz signaled in an interview to the German newspaper Handelsblatt that the BoC is indeed considering raising interest rates. In the response to the question about an interest rate hike, he said:



As our senior deputy governor said a week ago, when you are driving towards a red stoplight, you ease up on the accelerator well before you get there instead of waiting for the last second to stop. I think the same thinking is true in monetary policy, because you must anticipate where the economy will be 18 or 24 months from now.

He also stated that inflation is not the only indicator the central bank should watch and take into account when making policy decisions. What is more, Poloz said that the BoC could have already followed the Federal Reserve, tightening monetary policy, if not for the slump of crude oil prices:

In the US normalization began some time ago but it has been very gradual. Canada probably would have been along for that same period, were it not for the oil price shock, which set us back a couple of years.

Such comments led to speculations that a rate hike is very close, and it may happen as soon as the next week. Such talks helped the loonie to gain on its rivals.

USD/CAD dropped from 1.3005 to 1.2933 yesterday and remained near that level as of 1:27 GMT today. EUR/CAD traded at about 1.4691 after sliding from 1.4778 to 1.4672. CAD/JPY traded at 87.33 following the rally from 87.13 to 87.53.

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