Poloz’s Hawkish Speech Increases Odds of Another Rate Hike

Canadian DollarStephen Poloz, the Governor of Bank of Canada, has surprised the market on Thursday by delivering an upbeat statement regarding country’s economy. The Governor had given a hawkish comment last week about the interest rate. Things took an unexpected U-turn when Poloz delivered his speech to his audience at Canadian Club in Toronto.

The speech was titled as “Three Things Keeping Me Awake at Night, and it showed the optimism by the governor for the economic outlook of 2018. He told his audience that he is glad about the way things turned out to be in 2017 and is looking forward to a great year in 2018.

Poloz made the following statement:

The economy has made tremendous progress over the past year, and it is close to reaching its full potential. We are very encouraged by this, and we are growing increasingly confident that the economy will need less monetary stimulus over time.

Lee Hardman who is a currency strategist at MUFG is of the opinion that the speech made by Poloz gives away for the odds of another rate hike in the early months of 2018. He believes that the Bank of Canada would go for a rate hike in early spring and the statements would provide excellent support to loonie shortly.

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In 2017, the interest rates were increased twice by Bank of Canada by 50 basis points; once in July and September with the overall hike of 1 percent. Analysts were speculating for another rate hike in December or January. But the rate hike developments were dampened due to weak economic data and bearish statements released by Poloz. This, in turn, has sparked the national currency of Canada to sell off in November 2017. These positive statements from the Governor have turned sentiments bullish towards Canadian Dollar.

This shows a rally in the Canadian Dollar in coming months. A cash rate hike of 1.25% and 1.48% in the Overnight Index Swaps is indicated in April 2018 and September 2018 respectively.

The Governor of Canada Poloz remained neutral on this matter and said:

The economy was approaching its sweet spot where demand creates its supply.

The statement shows that a substantial demand would continue shortly without generating the inflationary pressure. Also, the central bank of Canada would remain patient, and the interest rates would be increased gradually.

Top10FX.net Editor

Top10FX.net Editor

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