FxWirePro: Poloz pops up loonie with hawkish comments

The Canadian central bank governor Stephen Poloz is not giving up any opportunity to play the hawkish drums, which is largely being seen as making the market participants prepared for a hike next week on 12th when policymakers will announce the outcome of Bank of Canada’s (BoC) monetary policy meeting.

The Canadian dollar has been strengthening since early May, from a low of 1.38 per dollar, however, the strengthening intensified since early June when BoC officials and especially Bank of Canada (BoC) Governor Stephen Poloz floated the idea of a possible rate hike at the July meeting. The Canadian dollar declined from 1.35 per dollar to 1.295 as of today. The financial market is now expecting the central bank to deliver on indication on July 12th.

Bank of Canada (BoC) Governor Stephen Poloz reinforced those expectations in an interview with Handelsblatt published on Tuesday, which boosted the Canadian dollar to a nearly 10-month high against the greenback. While Poloz noted that Canada's core inflation, which strips out volatile items, is fairly soft, he said monetary policy must anticipate where the economy will be in 18 or 24 months from now. He said, “If we only watched inflation and reacted to inflation, we would never reach our inflation target, we'd always be two years behind in the reaction…….So we have to look at the rest of our indicators in the models that predict inflation".

While BoC policy accommodation removal likely to be gradual, for now, the governor thinks that easing the accelerator would be a prudent thing to do.