The Bank of Canada's Indirection
30/09/09 20:01
Chris Lori and Ashraf Laidi
Webinar
Saturday Oct 3
Chris Lori Workshop
Kuala Lumpur
Oct 9-11
A good Article by Karl Schamotta, Market Analyst at Custom House Foreign Exchange
The Canadian dollar’s persistent strength continues to drive speculation that the Bank of Canada will intervene in the currency markets in an effort to support economic growth. The currency’s elevated value is already having a substantial deleterious effect on the Canadian economy, and fears are rising about whether the nascent economic recovery may be delayed as a result.
The Bank is specifically mandated to keep inflation within a target band. Because the general level of economic activity often predicates the inflation rate, the Bank is empowered to influence the currency’s value when it threatens to affect growth. However, Bank policymakers have frequently said that they see direct currency intervention as being futile, and prohibitively expensive. Therefore, while officials have repeatedly issued veiled threats against the currency’s rise over the last few months, the markets have routinely dismissed these threats as “jawboning” and have discounted any possibility of currency intervention. Because much of the Canadian dollar’s recent rise has been driven by speculative flows against the U.S. dollar, we also don’t see a strong likelihood of short-term intervention.
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Saturday Oct 3
Chris Lori Workshop
Kuala Lumpur
Oct 9-11
A good Article by Karl Schamotta, Market Analyst at Custom House Foreign Exchange
The Canadian dollar’s persistent strength continues to drive speculation that the Bank of Canada will intervene in the currency markets in an effort to support economic growth. The currency’s elevated value is already having a substantial deleterious effect on the Canadian economy, and fears are rising about whether the nascent economic recovery may be delayed as a result.
The Bank is specifically mandated to keep inflation within a target band. Because the general level of economic activity often predicates the inflation rate, the Bank is empowered to influence the currency’s value when it threatens to affect growth. However, Bank policymakers have frequently said that they see direct currency intervention as being futile, and prohibitively expensive. Therefore, while officials have repeatedly issued veiled threats against the currency’s rise over the last few months, the markets have routinely dismissed these threats as “jawboning” and have discounted any possibility of currency intervention. Because much of the Canadian dollar’s recent rise has been driven by speculative flows against the U.S. dollar, we also don’t see a strong likelihood of short-term intervention.
Read More...