The Canadian Dollar pretty much kept pace with the buoyant US Dollar last week. USD/CAD opened on Monday at 1.2760 and at the start of trading in North America that day moved on to a 1.28 ‘big figure’. Quite remarkably, that is where it stayed for the entire week with a low of 1.2820 on Tuesday and a high on Friday morning of 1.2895 before closing in New York at 1.2830. This amazingly steady performance dragged AUD/CAD down half a cent to 0.9725 with NZD/CAD down more than a cent to 0.9080.
In a week of very little fresh incoming economic data, the highlight was Bank of Canada Governor Stephen Poloz giving testimony to the Committee on Banking, Trade and Commerce on Wednesday afternoon. Mr. Poloz said he was "much more encouraged" about the economy than he had been when he last talked to the committee in November 2017. Pressed by one senator about what she called the bank's ‘fairly rosy’ outlook that it issued on April 18, he replied, “When we describe the economy, as you say, in rosy terms, it is, I would say, more like finally positive terms… For the economy as a whole, it has put the adjustments to the oil price shock behind us, but we still have softness in several areas of the country."
Whilst most attention in bond markets has been in the United States, where ten-year yields of 3.03% are the highest since January 2014, they’ve also been rising in Canada too. Yields on two-year and five-year government debt have reached the highest since 2011, surging 120 basis points since June, keeping the differential with the US broadly stable. The market consensus is for two more rates increases, most likely in July and either in October or December, according to overnight swaps data, although Bank of Canada Governor Stephen Poloz appears in no rush to validate these expectations. “What I don’t want is for people to be spending this entire year asking me what I’m up to because inflation is above target… You need once in a while to remind people that there’s a range and that’s okay, the policy allows for this. We’re not violating our target in some way.” The Canadian Dollar ended the week at USD/CAD1.2830, AUD/CAD0.9725 and GBP/CAD1.7680.