Loonie falls after Poloz suggests he's not ready to take away 'punch bowl'

Loonie falls after Poloz suggests he's not ready to take away 'punch bowl'
From CBC - March 13, 2018

The dollar came under renewedselling pressure on Tuesday morning, falling half a cent after Bank of Canada Governor Stephen Poloz'sspeechsuggested the pace ofinterest rates hikes may become more gradual as the economy expands without triggering inflation.

The loonie fell from 77.87 cents US to 77.37 cents after Polozstarted givinga speech aboutthe labour market at Queen's University in Kingston, Ont., in the morning.

That's a loss of half a cent, andcomesasthe dollar isalready the worst performing major currency in the worldthis year.

It hasbeen hit by a stronger U.S. dollar, lower oil prices and fears of a trade war, and isdown almost three per cent against the greenback in 2018.

Poloz'spositive description of the Canadian economy being in a "sweet spot" where investment usually takes over as the lead engine of growth, and in a phase "worth nurturing" had market watchers wondering if the central bank ismore inclined now to sit on the sidelines after raising interest rates three times since last year.

"The Canadian economy is carrying untapped potential that could prolong the expansion without causing inflation pressures," said Poloz.


Brian DePratto, senior economist at TD Economics said the policy message in the speech was "unambiguous" that accommodative monetary policyis not going away any time soon. In other words, do not expect rates to go up very quickly, very soon.

"Whether it is the expansionary investment phase 'worth nurturing' or the repeated references to the disinflationary effects of rising potential output, Poloz has made it clear that he will not be yanking away the punch bowl anytime soon," DePratto said in the note.

'Agradual pace of hikes is likely going forward.' BrianDePratto, TD Economics

"We remain of the view that in contrast to the relatively rapid-fire pace of tightening between July of last year and this January, a gradual pace of hikes is likely going forward," he added.

On Tuesday, the chanceof an interest rate hikeat the central bank's nextmeeting in April fell 14 per cent from Monday to 29 per cent, with chances ofrate hikes in the second half of the year now more likely, according to traders who bet on the Canadian dollar.

'Untapped' potential


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