Stephen S. Poloz, Governor of the Bank of Canada. Image via Bank of Canada
The Canadian Dollar has weakened sharply over this year and is now starting to break lower once again from recent consolidation against the US Dollar. This trend is likely to extend over the coming weeks as the Bank of Canada is widely expected to retain a cautious tone despite upside data surprises.
Indeed, if oil continues to reverse lower this will put further pressure on CAD and give the BOC greater reason to highlight caution in their outlook, although oil prices have not been a dominant driver of CAD over recent weeks.
BOC on Watch
The strongest factor influencing USDCAD at the moment remains the dovish stance of the BOC. The central bank has put a clear emphasis on the fact that the Canadian economy is at a different stage in the cycle to the US, in an effort to cap hawkish CAD rate expectations. Governor Poloz commented in a recent speech that he is more concerned about downside risks and that raising rates ahead of time would be highly likely to cause a recession.
Given the recent string of upside data surprises in the Canadian economy, this is an interesting view. When questioned about signs of improvement in the economy Poloz replied that “it would be off to forget about all those downside risks just because a couple of data points came in a little better than expected. This sentiment is likely to be reiterated in the upcoming BOC meeting on April 12th.
Read more: https://www.orbex.com/blog/2017/04/canadian-dollar-in-trouble-where-to-next/