USDCAD drops in the wake of BoC Poloz remarks regarding the interest rates' swings in Canada. Will the Bank of Canada cut the rates?
27 September, AtoZForex – Globalization may lead central banks to the need of having larger swings in interest rates and currencies in order to keep the inflation stable, as Stephen Poloz, the Governor of the Bank of Canada stated.
BoC Poloz remarks: Larger swings in rates?
The local economic forces impact may diminish as trade agreements are nurturing global supply chains, according to Mr. Poloz. Firms also now prefer dealing through foreign affiliates instead of shipping goods overseas. Mr. Poloz has stated during his lecture on Monday at Western Washington University in Bellingham:
“Increased integration may make it more challenging for central banks to control inflation, in the sense that doing so will require more variability in interest rates, exchange rates, and the output gap.”
While facing the challenges, policy makers might change the inflation targets, by allowing the larger range of price swings or more time to pull through the shock, as the governor stated. Mr. Poloz did not give any forecasts on the current stance or the bank’s 0.5 percent policy interest rate.
See also: 8 Forex Trading tips for 27th September
The Canadian economy has always been dependent on trade, and Mr. Poloz’s position as Governor has been formed by the two interest-rate cuts he performed in 2015 to decrease the damage from a slide in the commodity prices.
“We cushioned the blow” with rate cuts last year, Mr. Poloz stated, and “it will take three to five years for the economy to restructure itself.”
Aging populations curb the growth of the labor force
Stephen Poloz believes that negative economic shocks carry more importance at the time, where growth has appeared disappointing. He highlighted that global demand is being sluggish due to the aging populations’ trend to curb the growth of labor force, which is a major factor for economic growth.
Mr. Poloz added on the matter of how benefits of trade being often promoted by economists and political leaders who signed The North American Free Trade Agreement (NAFTA):
“By 2013, sales by Canadian-owned foreign affiliates almost matched a number of total exports sold from Canada, at C$510 billion versus C$573 billion, respectively. In effect, there is almost as large a Canadian economy operating in foreign countries as there is in the domestic export sector, creating jobs and GDP both domestically and abroad.”
On Monday, USDCAD soared to the highest levels in half a year as global markets sold off the Canadian dollar on the expectations of the rate cut by Stephen Poloz in the wake of poor Canadian retail sales and CPI data.
Think we missed something? Let us know in the comments section below.