The latest numbers revealed that the Canadian dollar has rallied in a robust comeback from its January downturn, with its current trading rate of over 78 cents U.S. However, this has spurred calls for the Bank of Canada to remain cautious and measured in its response to the loonie’s newfound strength.
Prior to the BoC’s April 13 rate announcement, the CIBC said that the Canadian currency’s performance level would place it on the central bank’s spotlight.
“[The BoC] will become more concerned if it gets closer to, or moves through 80 cents,” the CIBC said, as quoted by BNN
Since the beginning of 2016, the loonie has gained around 9 cents against the U.S. dollar, seemingly on a path to recovery after a year characterized by steep drops due to the global oil shock and two BoC rate cuts.
However, finance industry movers argued that the BoC—and Governor Stephen Poloz, in particular—should temper eagerness with a more circumspect approach, as any overt enthusiasm might introduce the risk of an upward spike in the Canadian dollar, which would prove disastrous to the country’s export advantage.
“How does one acknowledge an improving economy while sounding cautious enough to avoid having markets take your message as cause to prematurely tighten financial market conditions?” Scotiabank vice president of economics Derek Holt asked. “This will be the fundamental task facing the Bank of Canada.”
“[The BoC won’t] want to sound too upbeat,” BMO Capital Markets senior economist Robert Kavcic agreed, as the Bank fears “launching a much stronger loonie and nipping export momentum in the bud.”
“Those looking for an even more dovish signal to target the currency will be disappointed,” the CIBC said, adding that oil prices have exhibited more “downside risk in recent weeks than upside.”