The Canadian dollar dropped against its US counterpart on Wednesday in the wake of dovish comments from Bank of Canada Governor Stephen Poloz. The loonie also had broader losses against other major peers, as investors worried about the gross domestic product numbers, which are due to be released on Friday.
In his first speech since the Bank of Canada raised interest rates on September 6, Poloz said that the bank has no predetermined path for interest rates. The governor added that the central bank will move cautiously to a tighter monetary policy while assessing the performance of the Canadian economy.
Canada has made significant progress in handling the drop in oil prices. However, Poloz displayed uncertainty about the pace of economic recovery toward full capacity. The Bank of Canada raised interest rates twice this year, but the bank appears to be unsure of the timing at which inflation will reach the targeted 2.0%.
This uncertainty is forcing the central bank to take a non-mechanical approach to monetary policy, according to Poloz. Defining a certain pace or a clear road for interest rates in the near future remains out of reach for the central bank.
For now, the bankâs monetary policy will continue to depend on data. The Bank of Canadaâs governor is aiming for reaching a balance between economic growth and recovery. His speech today had the same dovish tone that Deputy Governor Tim Lane had last week. Analysts believe that officials from the central bank are paring expectations of more interest rate hikes in coming months.
Unlike Lane, however, Poloz spoke with a stronger emphasis on the inflation rate, which stubbornly remained below the targeted percentage. He also added that a higher wage growth is needed, which means that policymakers will keep a close eye on upcoming data releases to assess the strength of the economy.
On a positive note, the central bankâs governor said that rate cuts similar to the ones taken in 2015 are no longer needed.
Statistics Canada will release a report on gross domestic product growth on Friday, which is expected to show a 0.1% gain in July. No other major data releases are due this week.
USD/CAD rose to 1.2419 as of 17:10 GMT on Wednesday after touching 1.2426 at 17:00 GMT, the pairâs highest level since September 4. USD/CAD began trading today at 1.2366.
GBP/CAD reached 1.6647 after climbing to 1.6656 at 17:00 GMT, the pairâs strongest level since yesterday. GBP/CAD started the day at 1.6620.
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