The Canadian Dollar had a very poor week, the worst performer amongst the six major currencies we follow closely here. USD/CAD opened on Monday morning around 1.2820 and the pair fluctuating in a range 20 pips either side of this level for the next 36 hours as traders awaited a speech on Tuesday from Bank of Canada Governor Stephen Poloz. As the headlines hit the newswires (see below) USD/CAD jumped more than a full cent to 1.2970 and after a very soft set of housing numbers on Thursday and more talk of US tariffs, it broke 1.30 for the first time since June last year. GBP/CAD hit 1.82; its best level since the EU referendum 20 months ago whilst AUD/CAD and NZD/CAD registered 9-month highs.
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.”
Friday brought existing home sales data in Canada. These had fallen 14.5% in January from December to the lowest monthly level in three years as tighter mortgage rules hit demand. New and tougher rules on mortgage lending were imposed at the start of January amid fears of a housing bubble, requiring lenders to “stress test” borrowers to ensure they could withstand higher interest rates. The changes meant fewer buyers qualify for loans. Far from rebounding in February, home sales fell another 6.5% during the month and were down 16.9% in year-on-year terms. Sales were down from the previous month in almost three-quarters of all local housing markets, with large monthly declines in and around Greater Vancouver and Greater Toronto. Despite an 8.1% monthly increase in February, new listings nationally were still lower than monthly levels recorded in every month last year except January, and came in 6.4% below the 10-year monthly average and 14.6% below the peak reached in December 2017. The Canadian Dollar ended a very poor week at USD/CAD1.3095, AUD/CAD1.00100 and GBP/CAD1.8265.