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Canadian Dollar Falls on Poloz’s Growth Forecast

H.S. Borji
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Canadian Dollar Falls on Poloz’s Growth Forecast

The Canadian dollar fell further below 90 US cents, as the forex market continued to react to Bank of Canada Governor Stephen Poloz’s gloomy growth forecast.

The loonie fell sharply Tuesday after Poloz said slow economic growth is likely the new norm for Canada. The Canadian economy surprised the markets last quarter by expanding at an annualized rate of 2.9 percent. However, this likely won’t be enough to spearhead a faster rebound for the export-driven nation of 36 million. According to Poloz, the central bank may have to keep interest rates low to ensure the economy continues to grow.

After his speech, Poloz said there wasn’t much evidence to suggest Canada’s export market has benefited from the loonie’s recent skid.

“To date, I’ve not seen anything that suggests we’ve actually had a reaction to that,” Poloz said in a news conference. “It’s not expected to be the big thing that causes our trade performance to change. I think the big thing is the US recovery.”

The Canadian dollar has been trading below parity with the greenback since February 2013. Declining commodity prices, emerging market volatility and domestic uncertainty have all driven a wedge in Canada’s growth prospects, which have in turn weighed on the loonie. While firmer GDP results last quarter silenced speculation about lower interest rates, Poloz said yesterday he wouldn’t rule out another rate cut to stimulate growth. Canada’s benchmark interest rate has been left at 1 percent since September 2010.

The USDCAD currency pair soared to 1.1144 in the afternoon trade, advancing more than 0.7 percent. The pair, which was supported all day, spiked after the Federal Reserve announced it will taper bond purchases by another $10 billion. Fed Chair Janet Yellen said the central bank’s quantitative easing program could be wrapped up this fall.

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