"Everything they've said here so obviously welcomes the currency going down it would be a small step from that to start allowing the currency to drive domestic policy. Even though they didn't move to an easing bias, it takes us a step closer to that, maybe."
- Adam Cole, head of Group of 10 currency strategy at Royal Bank of Canada
A disappointing Canadian labour market report for December provoked a downside rally in the CAD-based currency pairs in the time for the New Year. It is clear that the land of the maple leaf created much less jobs in 2013 than a year ago. Moreover, weak inflationary pressure remains another headache for the Bank of Canada. Stephen Poloz, Mark Carney's predecessor, is known for his dovish view, and has already expressed his concerns about the low price growth. And while economy is still developing at a moderate pace, the latest data is suggesting the central bank will soon be forced to pull the trigger and boost economic growth.
Despite these concerns it was widely expected the BoC will leave interest rates unchanged at 1%; however, Canadian policymakers claimed the strength of domestic currency is hurting exporters and a significant drop in the loonie will be welcomed. The key refinancing rate has been at 1% level since September 2010, and according to Poloz his next move in the monetary policy will depend on how fundamental data change the balance of risks to the Canadian economy. His comments catapulted the USD/CAD to 1.1155, the weakest level in more than four years. The loonie may become another top loser this year; however, further depreciation during the next couple of weeks is unexpected taking into account a lack of important data releases from the U.S. and Canada.
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