🔺 What to do when markets are at an all-time high? Find smart bargains, like these.See Undervalued Stocks

Higher US Fed rates 'not a major concern' for C$, BoC's Macklem says

Published 04/20/2023, 12:35 PM
Updated 04/20/2023, 04:06 PM
© Reuters. FILE PHOTO: Bank of Canada Governor Tiff Macklem takes part in a news conference after announcing an interest rate decision in Ottawa, Ontario, Canada April 12, 2023. REUTERS/Blair Gable

By Ismail Shakil

OTTAWA (Reuters) -The impact of higher U.S. interest rates on the Canadian dollar is not a "major concern," and the Bank of Canada (BoC) would have to react only if there is a substantial depreciation of the loonie, Governor Tiff Macklem said on Thursday.

Macklem, appearing before a Canadian Senate committee, was asked if the Federal Reserve's continuing to raise rates could lead to the weakening of the Canadian dollar and hinder the BoC's plan to tame high inflation.

Typically, higher rates in the United States than in Canada would strengthen the greenback over the loonie.

"That is not a major concern. We have an independent monetary policy, we have a flexible exchange rate," Macklem told a Senate committee. In a floating exchange rate regime, a currency's level is determined by supply and demand in the market.

"It's something we'll have to take into account if the (Canadian) dollar were to depreciate considerably," Macklem said.

The Canadian dollar has weakened about 11% against its U.S. counterpart since June 2021, when inflation started to pick up, though year-to-date it is up 0.6% against greenback.

The BoC raised rates at a record pace over the past year to cool inflation, and then became the first major central bank to pause monetary tightening. It has left its key policy rate at a 15-year high of 4.50% at its last two policy-setting meetings.

The U.S. Federal Reserve, also fighting high inflation, has continued raising rates and is expected to deliver another 25-basis-point hike in May to take its key policy rate to the 5.00%-5.25% range, according to Reuters' poll of economists.

© Reuters. FILE PHOTO: Bank of Canada Governor Tiff Macklem takes part in a news conference after announcing an interest rate decision in Ottawa, Ontario, Canada April 12, 2023. REUTERS/Blair Gable

"The Canadian dollar, it's been reasonably stable ... and largely that reflects the fact that the U.S. has also been raising interest rates very rapidly," Macklem said.

"I don't see a big problem if the U.S. is going a little higher than us. I think that's kind of already built into the market," he said.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.