USD/CAD helped higher by Poloz comments
Bank of Canada Governor Stephen Poloz spoke to reporters on the weekend and seemed to indicate that higher inflation isn’t going to force him into a rate hike.
That he would go out of his way to speak to reporters with a dovish message adds weight to his comments.
“What I don’t want is for people to be spending this entire year asking me what I’m up to because inflation is above target,” Poloz said. “You need once in a while to remind people that there’s a range and that’s okay, the policy allows for this. We’re not violating our target in some way.”
The implied odds in the OIS market of a May 30 hike have fallen to 35% from nearly 50% last week.
Poloz was also attempting to add a more nuanced view to the path of inflation. He highlighted that temporary factors were going to push Canadian inflation higher over the next few months. He said that won’t be a reason to hike.
At the same time, he sees a period of higher-than-2% inflation as beneficial because that could help anchor expectations for consumers.
“In that abstract way, it’s actually a positive thing because we’ve had an extensive period where it’s been below, so that period of slightly above is going to help reinforce that 2 percent average which we haven’t quite made in the last few years,” Poloz said. “There is no intention there. I’m just saying that’s a positive byproduct of that modest overshoot that’s happening.”
USD/CAD is up 68 pips today and at a three-week high. The main driver of today’s move is broad US dollar strength on higher Treasury yields.
In the bigger picture, the Canadian dollar is a mid-performer. It’s above AUD, NZD and JPY while trailing the European currencies.