USD/CAD surges on Bank of Canada official’s speech

After a speech that reaffirmed a neutral to dovish tilt in Canada’s monetary policy, USD/CAD surged in afternoon North American trade.

Speaking Tuesday afternoon to the Finance Club of Montreal, Bank of Canada (BoC) Deputy Governor Carolyn Wilkens said there is room for the central bank to lower rates if necessary, alluding to the fact that the central bank has sat on the sidelines over the last year while the US Federal Reserve has steadily lowered rates.

The Bank of Canada’s official rate, the Bank Rate, stands at 1.75%, while the US Federal Funds rate is trading around 1.5%. Canada’s relatively high interest rates have supported the Loonie throughout the year, climbing against the greenback by about 3% since January.

Loonie slides

The US dollar rose by as much as 65 pips against the Loonie Tuesday, climbing sharply as Deputy Governor Wilkens began speaking in the early afternoon. In late New York trading USD/CAD was trading around $1.3265.

As is often the case, the BoC has had to walk a tightrope between diverging regional economic performances in Canada’s vast territory.

Ontario powerhouse

Economic powerhouse Ontario has been doing well, with Southern Ontario, particularly Toronto, coming strongly out of a sharp 2015/2016 real estate slump. Construction in Toronto is booming, with over 120 cranes gracing its skyline, more than New York, Los Angeles, Seattle and Boston combined.

So, while the BoC must keep a watchful eye out for possible overheating in Ontario, its relatively tight monetary policy is producing groans in Alberta’s oil dependent economy. The western province’s economy has fallen into a mild recession this year – expected to contract by about 1% - as big delays in construction of oil pipelines related to its huge Tar Sands oil deposits have caused uncertainty.