- Joined
- Mar 24, 2009
- Messages
- 16,743
The Bank of Canada has spoken extensively on economic conditions and methods of unconventional monetary policy in recent months as it slashed interest rates to record lows to combat the duel attack of recession and tight credit markets.
One subject Bay Street has not been given much guidance on under governor Mark Carney, is the bank`s stance on another major player in Canada`s fortunes: the Canadian dollar.
To be fair, the currency has not been of major concern in recent months, having eased to levels more favorable to the country`s exporters. But now, as the it marches back towards parity with the greenback, even amid ongoing domestic economic weakness, the market is listening for guidance on the bank`s stance on the loonie when it releases its interest rate announcement on Thursday next week.
Shaun Osborne, chief currency strategist at TD Securities, said the loonie would likely be back at parity with the greenback by the end of the year. He predicted it to sit above parity in the early part of 2010 until the U.S. economy began to recover.
The Canadian dollar has risen 16% in the past 11 weeks, closing at US89.33¢ Wednesday after popping above US90¢ during the day. It was the highest level in almost eight months and coincided with oil breaking above its 200-day moving average to close at US$63.45 a barrel.
Derek Holt, vice president and economist at Scotia Capital, said "the timing couldn`t be worse" for the appreciation in the Canadian dollar given the economy had arrived at a "critical juncture" in turning the painful drop in gross domestic product into hope for improved conditions later in the year.
But it is the drivers behind the loonie`s appreciation that will determine whether the surge higher will become a problem for the economy and the central bank.
In the days of former governor, David Dodge, the Bank of Canada categorized currency movements into two scenarios: `type one` and `type two.` Type one movements are based on domestic fundamentals, such as commodity prices, GDP and fiscal balances, while type two movements are a result of external factors, such as a depreciation in the U.S. dollar due to current account concerns.
Under Mr. Dodge, the central bank had indicated that an appreciation in the Canadian dollar in a type two situation would warrant the central bank taking a lower policy interest rate than would otherwise be the case.
With Canadian interest rates at a record low 0.25%, the Bank`s only ammunition against a type two appreciation would be a move into unconventional quantitative or credit easing, whereby the government buys up bonds in order to drive yields lower, stimulating the economy.
But this is a form of monetary policy the bank has indicated it would prefer to steer clear of.
Intervention directly into the foreign exchange markets to either boost or restrain the currency is also a strategy most major central banks around the world have given up as unwinnable in today`s gargantuan markets.
Read the full article here.
One subject Bay Street has not been given much guidance on under governor Mark Carney, is the bank`s stance on another major player in Canada`s fortunes: the Canadian dollar.
To be fair, the currency has not been of major concern in recent months, having eased to levels more favorable to the country`s exporters. But now, as the it marches back towards parity with the greenback, even amid ongoing domestic economic weakness, the market is listening for guidance on the bank`s stance on the loonie when it releases its interest rate announcement on Thursday next week.
Shaun Osborne, chief currency strategist at TD Securities, said the loonie would likely be back at parity with the greenback by the end of the year. He predicted it to sit above parity in the early part of 2010 until the U.S. economy began to recover.
The Canadian dollar has risen 16% in the past 11 weeks, closing at US89.33¢ Wednesday after popping above US90¢ during the day. It was the highest level in almost eight months and coincided with oil breaking above its 200-day moving average to close at US$63.45 a barrel.
Derek Holt, vice president and economist at Scotia Capital, said "the timing couldn`t be worse" for the appreciation in the Canadian dollar given the economy had arrived at a "critical juncture" in turning the painful drop in gross domestic product into hope for improved conditions later in the year.
But it is the drivers behind the loonie`s appreciation that will determine whether the surge higher will become a problem for the economy and the central bank.
In the days of former governor, David Dodge, the Bank of Canada categorized currency movements into two scenarios: `type one` and `type two.` Type one movements are based on domestic fundamentals, such as commodity prices, GDP and fiscal balances, while type two movements are a result of external factors, such as a depreciation in the U.S. dollar due to current account concerns.
Under Mr. Dodge, the central bank had indicated that an appreciation in the Canadian dollar in a type two situation would warrant the central bank taking a lower policy interest rate than would otherwise be the case.
With Canadian interest rates at a record low 0.25%, the Bank`s only ammunition against a type two appreciation would be a move into unconventional quantitative or credit easing, whereby the government buys up bonds in order to drive yields lower, stimulating the economy.
But this is a form of monetary policy the bank has indicated it would prefer to steer clear of.
Intervention directly into the foreign exchange markets to either boost or restrain the currency is also a strategy most major central banks around the world have given up as unwinnable in today`s gargantuan markets.
Read the full article here.