The world’s 11th-largest economy will be hobbled this year by weak exports and record debts that are curbing consumer spending, even as the risks of a major international shock have eased, the Bank of Canada said. It remains the lone central bank among Group of Seven nations suggesting a rate increase, as its peers have added stimulus in recent months.
“It’s more dovish than they’ve been in previous statements,” said John Curran, a senior vice president at USForex Ltd., an online foreign-exchange dealer, by phone from Toronto. “They’ve always said we’re going to raise sooner rather than later, and now they’re backing away from that slightly, so you’re seeing the Canadian dollar weaken on that.”
The Federal Reserve has a short-term interest rate target of zero to 0.25% and is expanding its bonds buying in an effort to reduce U.S. unemployment and boost the economy of Canada’s largest trading partner.
“I would probably sell U.S. dollars at parity,” said Audrey Childe-Freeman, head foreign-exchange strategist at Bank of Montreal by phone from London. “If you look at the respective Fed and Bank of Canada meetings, it really feels like the advantage remains with the Bank of Canada in terms of monetary policy support, and that’s supportive for the Canadian dollar.”
The loonie is unlikely to close above parity, and will develop a new trading range between C$1 and 98 cents per U.S. dollar, Childe-Freeman said.
Carney is leaving Canada’s central bank June 1 to lead the Bank of England a month later, and will keep his other role as Chairman of the Financial Stability Board.
Economists predict Senior Deputy Governor Tiff Macklem will become the next governor, a subject he didn’t address at today’s press conference. Macklem did say declines in housing starts and resales are signs household imbalances are easing.
The loonie has fallen 2.3% during the past six months versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The euro has gained 5.9% while the greenback has dropped 4.5%.