Bank of Canada Governor Mark Carney expressed concern with the level of volatility in foreign exchange markets, and warned that Canadian businesses may have to get used to being buffeted by gyrations in the value of the dollar for "some time."
Mr. Carney, who has repeated since June that a stronger loonie risks snuffing out a fragile recovery, said currency values are jumping higher and sinking lower with uncommon pace because investors remain so uncertain about the state of the global economy.
"We're at a turning point," Mr. Carney said in an interview in Turkey's financial capital, where he is attending meetings associated with the annual gathering of officials from the 186 members of the International Monetary Fund and World Bank.
"Often asset markets, and foreign exchange is one, are more volatile at turning points because there is a wider range of views about where we're going," Mr. Carney continued. "It's an issue to be watched and the impact of that volatility could be relevant."
That volatility is expressed best through the U.S. dollar, which has fallen 14 per cent against a basket of seven currencies since early March, according to Bloomberg News. The loonie, the euro and the Australian and New Zealand dollars have all appreciated against the dollar, causing anxiety for exporters who already are struggling to find markets in the aftermath of the global recession.
Mr. Carney and other policy makers at the central bank have sought to take some of the steam out of the loonie's rise by making clear that "persistent" strength will hurt growth and impede their attempt to meet their mandate to keep inflation advancing at about 2 per cent a year. The idea of the "jawboning" is to get speculators to think twice about making a one way bet on the loonie by forcing traders to consider the risk the Bank of Canada could adopt policy that would make the Canadian dollar less attractive and cost them money.
Still, there's only so much policy makers can do without trying largely untested policies such as creating money to buy bonds, something Mr. Carney has intimated in recent months that he's willing to do if currency drifts too far out of line with economic fundamentals.
Mr. Carney declined to say whether Canadian businesses need to learn to hedge in order to mitigate currency risk, saying it's not his place to give investment advice.
However, he did signal that businesses should get used to greater foreign exchange volatility.
"There is a shift in global growth that is going on and is likely to persist for some time," Mr. Carney said. "That requires hard thinking by Canadian businesses."