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Canadian Dollar Whipsaws as BoC’s Poloz Clarifies Misunderstanding

Canadian Dollar Whipsaws as BoC’s Poloz Clarifies Misunderstanding

Daniel Dubrovsky, Senior Strategist

Talking Points

  • The Canadian Dollar rallied then stumbled after BOC Governor Stephen Poloz spoke
  • Stephen Poloz said that their best strategy for the time being is to wait for the next 18 months
  • Following the announcement, Poloz clarified that the comment was not aimed at monetary policy

Having trouble trading the Canadian Dollar? This may be why.

The Canadian Dollar initially strengthened against its major counterparts at the end of Monday’s session as Bank of Canada’s (BOC) Governor Stephen Poloz presented a speech to the House of Commons. Less than a week ago, Poloz took center stage and revealed that the governing council actively discussed the possibility of adding more stimulus - remarks that led to a stumble for the local currency at the time.

In today’s speech, Stephen Poloz announced that their best plan for the time being is to wait for the next 18 months – a time frame initially interpreted as a curb on additional accommodation. He went on to say that uncertainties kept the Bank of Canada from cutting rates. In addition, the governor highlighted that the bank still has room to adjust monetary policy if needed and that they are willing to do so. This likely reduced near term rate cut expectations that had accumulated since last week’s interest rate decision. For USD/CAD, the reaction was a more than 110 pip (approximately 0.8 percent) tumble in the span of little more than hour.

However, about an hour and 45 minutes after the initial remarkscrossed the wires, the central bank’s Governor issued a clarification that the 18-month comment was not about monetary policy. It was rather a reference to the output gap. Following the misunderstanding, the Loonie pulled back to negate some of its prior gains. The pair responded with an even more abrupt 80 pip rally – a 0.6 percent rebound.

Keep an eye on short-term trends for Canadian Dollar crosses using the Grid Sight Index (GSI) here.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.