Canadian Dollar Plunges Against the Greenback; Bank of Canada Governor Says Uncertain US Trade Policy a Risk to Canadian Economy

The Canadian dollar started off 2017 by appreciating against the greenback, however, today’s speech by Stephen Poloz, Governor of the Bank of Canada, caused the Canadian currency to drop 1.7% against the US dollar in the space of a few hours. The USD/CAD Forex pair hit a high of 1.3273 for the day.

This was the largest sell-off Canadian dollar since the start of 2017.

While the Canadian central bank announced that overnight rates would remain at 0.5 per cent - which was forecast by most analysts and expected by market participants - Poloz’s remarks about the unknown risks to the Canadian economy due to President-elect Trump’s radical approach to US trade policy, sent the Canadian dollar crashing.

Stephen Poloz said in his Monetary Policy Report press conference:
“The uncertainty we face as forecasters and policy-makers remains undiminished. The Monetary Policy Report outlines a number of risks to our projection in both directions. In our discussions, Governing Council was particularly concerned about the ramifications of US trade policy, because it is so fundamental to the Canadian economy. But we cannot capture these in our projections because they are simply unknown at this point.”
This sentiment was also present in the overnight rate press release, which was released ahead of the Governor’s speech, where the Bank of Canada states:
“Uncertainty about the global outlook is undiminished, particularly with respect to policies in the United States.”
Additionally, Canada’s central bank head said a US corporate tax cut may negatively impact Canadian exports, which would translate to less investments in the country.
“First, a corporate tax cut in the United States could adversely affect Canadian export competitiveness.”

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1 comment :

  1. Some people seem to fear that a Trump presidential regime may act to put up trade barriers in protection of the American market. It seems unlikely that we will see a Canadian wall, paid for by Canadians:)
    but we may see more direct tariffs applied.

    Trump is faced with the curious situation of being free market and free trade, but only in one direction. Hopefully, political reality will bring about sensible policies, but the American government cannot expect to close its borders to imports, and expect that other countries will not retaliate. Hence, uncertainty exists at the present moment, and we can expect greater volatility in the USD versus everybody over the next few months until we have a better grasp of the realities of the expectations and abilities of the Trump regime.

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