BOC’s Poloz Fuels Negative Rates Speculation

<h2>Poloz: BOC Ready To Do More</h2>
<p>Stephen Poloz, governor of the Bank Of Canada, has fuelled expectations that the BOC could soon move into negative rates during comments made yesterday. Poloz, speaking ahead of handing the reigns over to incoming BOC governor Tiff Macklem on June 3^rd, sought to reassure investors, saying that the bank’s monetary policy support was flexible enough to cope with inflation taking longer than projected to come back to its 2% target.</p>
<p>Poloz’s comments, made during a video-conference to the University of Alberta, come on the back of Canadian inflation turning negative in April for the first time since the global financial crisis. Poloz explained that the BOC was comfortable in letting inflation increase “more slowly or quickly than on average” saying: “Our policy framework does give us flexibility in the time it takes to get inflation back to target which allows us to make tactical decisions to avoid unintentionally making financial stability concerns worse.”</p>
<p>There were some subtle adjustments in Poloz’s language which reflected the view that inflation is taking longer to come back to target. The bank typically refers to the midpoint of the 1% – 3% range though during these comments Poloz said that the inflation targets “sits within. Control range of 1% – 3%”. However, Poloz was quick to explain that should the economy require further monetary support, the BOC has the room to provide further support. The BOC governor reiterated the bank’s message saying that it stands ready to augment the scale of any of its programs as necessary to support the market. In response to the eocnomic disruption caused by the COVID-19 lockdowns, the BOC has now cut rates to record 0.25% lows as well as initiating QE.</p>
<h2>Poloz: My Own View Not As Pessimistic</h2>
<p>Poloz was keen to deliver a tempered message, highlighting the uncertainty and risks in the outlook while also explaining that his own view is not as pessimistic as many being shared currently. On this matter, Poloz said: “We have to be able to manage the risks around those things, so I’m not going to dismiss pessimistic scenarios. But, me personally, I do think on balance what I’m hearing, the flow that I’m hearing, is a little too dire, a little bit overblown.”</p>
<p>The uncertainty in the outlook was clear as Poloz commented on rates saying: “We are in an era where interest rates are probably going to stay low, for demographic reasons and economic growth reasons. I don’t know how low really, but they’re just not going to be like where they were 20 years ago or 30 years ago. So central banks will have less room to manoeuvre.”</p>
<h2>Technical Views</h2>
<p><strong>USDCAD (Bearish below 1.3851)</strong></p>
<p>From a technical viewpoint. USDCAD continues to correct lower within a falling wedge pattern and has now broken beneath the 1.3851 level support. Price is currently retesting the 2017 highs at 1.3779, acting as support for now, and with VWAP negative further losses could be seen down to the 1.3667 level next. However, bullish divergence in momentum studies is worth noting as we test support levels within the corective pattern.</p>
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