The reason why the loonie is surging and USDCAD tumbling is because moments ago, in his testimony before the House of Commons committee in Ottawa, BOC head Poloz said that the Bank of Canada is taking a wait-and-see approach to dealing with Canada’s two-track economy, adding that fiscal stimulus has eased pressure for lower rates.
He said that “we have to weigh the risks of waiting longer against what are the costs associated with doing something more immediate” adding that “if we were to be easing further, we’d be very close to using unconventional tools. And so that’s of course not a decision we take lightly.” As a reminder, many have speculated that the BOC may be the next central bank to pursue NIRP, although for the time being at least it appears that the Canadian central bank is trying to push back.
“And when we have the Canadian economy operating on two tracks – one track doing reasonably well and in certain regions doing quite well, and others adjusting through something quite difficult, it’s not as easy as it sounds to speed up the fast-growing parts to offset the slow growing parts. If everything was the same, it would be in many ways an easier decision to do that kind of thing.”
“So this is what I mean by the uncertainties, they’re multidimensional. So we just have to take — we do a fresh judgment every time and again we can’t plan it out that way, but our best plan right now, we think, is to wait for the next 18 months or so.”
And so with the BOC becoming the latest central banks to punt on more monetary easing into the realm of fiscal stimulus and policy, CAD traders were caught offguard, and the result was a nearly 100 pip surge in the Canadian currency.