BoC Ctrikes Cautious Tone, Dampening Loonie Upside - MUFG
Lee Hardman, Currency Analyst at MUFG, notes that the Canadian dollar
has weakened modestly following yesterday’s more dovish than expected
BoC policy meeting and release of their latest Monetary Policy Report.
Key Quotes
“BoC
Governor Poloz struck a more cautious tone than expected stating that
it was “best to look through short-term economic strength” downplaying
stronger economic growth at the start of this year. He warned that the
global economy may disappoint further.
The more downbeat than
expected tone from the BoC was reflected by the downgrade to their
estimates for potential growth in Canada in the coming years which
provided a counterbalance to the upward revision to their forecast for
economic growth this year. As a result the BoC’s projection for when
spare capacity will be used up was shifted somewhat earlier to the
second half of 2017.
Governor Poloz implied that the BoC would
have been closer to lowering rates in light of recent negative
developments if it had not been for the stimulative impact provided by
the government’s recent budget. Recent negative developments included
weaker global growth, a further downgrade to investment intentions in
Canada’s energy sector and the weaker outlook for non-resource exports
which the BoC noted that the recent strengthening of the Canadian dollar
contributes to. It provides a signal that the BoC does not want to
encourage further loonie strength. With the BoC still unlikely to begin
raising rates in the year ahead there is only limited room for Canadian
short rates to continuing adjusting higher in the near-term. It
supports our view that further upside for the loonie will become more
challenging.”
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