The hint late Monday that Bank of Canada governor Mark Carney isn’t always channelling the spirit of the hard-money Bundesbank has taken the wind out of the Canadian dollar.
On a day when you’d think the loonie would be on a roll because commodities are stronger and the risk-on trade is back big time, the currency is down about a half cent at midday to $1.0147 (U.S.). Almost all other major currencies are up against the U.S. dollar, giving the Canadian unit the dubious distinction as world’s weakest currency so far today.
Some market players suggest Mr. Carney caused the selloff by leaving 12 key words out of a speech he gave in British Columbia late in the Monday trading day: “Modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”
That had been the bank’s standard boiler plate that it is considering higher rates.
The Street was counting on Canada being a monetary hawk, at a time when the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan are all doves, running the printing presses to combat their various economic ills.
Does this make the loonie a sale? Some strategists are saying no, a view that suggests the weakness is an opportunity to buy the dip.
Camilla Sutton, chief currency strategist at Scotiabank, says in a note to clients that Mr. Carney’s remarks don’t shift her bullish view of the dollar going into 2013.
She figures that even if the Bank of Canada starts taking a neutral stance on rates, it will be far more hawkish than the Fed. And then the U.S. has a number of other well-known problems that make Canada look like a safe haven. Among them are the lack of a credible fiscal plan and political gridlock, difficulties that should provide a strong bid for the loonie. Canada is also one of the dwindling countries with a triple-A credit rating, which leads to capital inflows. She thinks the dollar could get up to $1.04 (U.S.)
Another Canadian dollar bull urging investors to use the weakness to buy the loonie is Dennis Gartman, proprietor of the Gartman Letter, although he was clearly irked by what Mr. Carney didn’t say.
The absence of the tightening language “has not made the heart grow fonder of the C$ but has made the heart grow dismayed. Are the Canadian monetary authorities, months after telling us that the next likely course of action shall be to tighten policy rather than to ease it, have shifted their course and are prepared to ease policy instead, f ollowing the leads of the Fed, the ECB and the Bank of Japan?”
His take: Mr. Carney was avoiding making any forward-looking comment on monetary policy, just before the release of next week’s official policy statement by the bank.
“We’ll know next Tuesday, but until then we feel strongly that the C$ weakness since yesterday is ill-advised and shall strongly urge those not yet long of the C$ and short of the yen to become so,” he told clients.