Canadian Dollar Declines After Poloz Cites Currency's Strengthby
The Canadian dollar fell from near its strongest level in nine months after Bank of Canada Governor Stephen Poloz cited the currency’s recent strength and said he might have been inclined to cut interest rates if not for the federal government’s fiscal stimulus.
The currency has been the top performer in the developed world the past three months as oil prices rebounded, economic data showed signs the loonie’s past depreciation was helping non-commodity exporters and the federal government unveiled plans for C$120 billion ($94 billion) in deficit spending.
The past three years of declines in the Canadian currency have made Canadian products more competitive, the bank said in a statement Wednesday that explained its decision to keep rates unchanged at 0.5 percent. In a news conference, Poloz said a stronger Canadian dollar may put export growth at risk.
Mentioning the higher Canadian dollar “is their attempt to hold it in from strengthening further,” said Greg Anderson, global head of foreign-exchange strategy in New York at Bank of Montreal.
The loonie, as the Canadian dollar is known for the aquatic bird on the C$1 coin, fell 0.5 percent to C$1.2821 per U.S. dollar as of about 3 p.m. in Toronto. One Canadian dollar buys about 78 U.S. cents.
Bets in the Canadian dollar’s favor by hedge funds and other large speculators barely outnumbered those against it last week -- by 97 contracts -- showing the market tilted to net long for the first time since May, according to data from the Commodity Futures Trading Commission. The currency’s rally contrasts with forecasts for it to weaken to about C$1.34 per U.S. dollar by mid-year, according to the median estimate in a Bloomberg survey.
Government spending boosts Canada’s economic growth rate by 0.5 percentage point this year and 0.6 percentage point in 2017, the central bank said, incorporating assumptions from last month’s budget.
The loonie is still about 25 percent cheaper than it was at the end of 2012, after a historic three-year depreciation that the central bank has credited with helping exports.