Deputy Bank of Canada Governor Timothy Lane had criticized the BoC for raising its key rate on Sept. 6 at a meeting with no scheduled press conference. Yesterday, he took advantage of a speech in Saskatoon to make a few clarifications, while reiterating that the key rate was still low compared with a “neutral” level. Lane noted two sources of concern:
- the strength of the Canadian dollar
- NAFTA renegotiations
The impact of these 2 elements on the economy will be seriously taken into account, as will upcoming economic data, like inflation, which will be posted on Friday morning. The CAD quickly shed 80 points on the news. As Canadian fundamentals remain solid, USD sellers should take advantage of rallies in the USD/CAD pair.
For the past few months, many central banks have been normalizing their monetary policy, either by raising their key rate or saying that they will do so, or by trimming their balance sheet. Given this context of a steepening interest-rate curve, the yen could continue to slide, placing Canadian exporters to Japan at risk.
Olivier Cosialls
Range of the day: 1.2200 – 1.2400
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