The Canadian Dollar began the week with back-to-back appearances at the bottom of our one-day performance table. USD/CAD edged gradually higher in Asia and the European morning then jumped from 1.2840 to 1.2925 as headlines from Bank of Canada Governor Stephen Poloz’s speech began to hit the newswires. By the end of the day, USD/CAD was in the high-1.29’s and GBP/CAD hit 1.80 for the first time since the day after the UK referendum on Brexit back in June 2016.
In a speech which focused on labour market slack, the Governor said Canada is at the “sweet spot” of the business cycle where growing demand is actually generating new capacity as companies invest to meet sales, a process he said the Bank of Canada has an “obligation” to nurture. The increased investment, meanwhile, will help bring more people into the work force - such as women, youth and the long-term unemployed. “Put it all together, and it is not much of a stretch to imagine that Canada’s labour force could expand by another half a million workers. To put this thought experiment into perspective, this could increase Canada’s potential output by as much as 1.5 per cent, or about $30 billion per year. That’s equal to a permanent increase in output of almost $1,000 per Canadian every year, even before you factor in the possible investment and productivity gains that would come with such an increase in labour supply. Clearly, that is a prize worth pursuing.”
On monetary policy, Poloz said, “It should be clear that there are likely to be significant economic benefits associated with allowing the economy to find its way to a higher, more productive economic equilibrium, if this can happen within our inflation-targeting regime… “We cannot know in advance how far the capacity-building process can go, but we have an obligation to allow it to occur.” This doesn’t sound like a man in any hurry to raise interest rates, hence the slump in the Canadian Dollar which opens in North America at USD/CAD1.2950, AUD/CAD1.0215 and GBP/CAD1.8065.