BoC: Has the loonie’s decline started to bite? – UniCredit

By FXStreet FXStreet (Delhi) – Research Team at Unicredit, suggests that the recent sharp depreciation of the CAD (in tandem with the whole of the commodity FX bloc) reflects the slump in energy (commodity) prices, which has compounded expectations of further monetary policy easing.

Key Quotes

“BoC communication has reduced the probability of the latter and should restrain further CAD weakness, barring another round of collapsing oil prices. It should also reignite CAD’s outperformance vis a vis the core commodity currency complex, i.e. AUD and NZD.

BoC governor Stephen Poloz said that a further sharp depreciation of the CAD would now pose a risk to the BoC’s inflation outlook. In our view, this illustrates that the central bank believes the exchange rate has done most of the heavy lifting to absorb the shocks and that now the balance of risk may be shifting, a point which we have also highlighted recently.

We would make two remarks here: First, this kind of communication conveys the message that the BoC thinks that monetary policy may be approaching it limits. This is important, especially when compared to Australia and New Zealand, where the room to ease is bigger.

Secondly, and although it is certainly not part of their mandate, …read more

Source:: FX Street