BoC’s Macklem plays down fiscal risks but leaves rate hike on the table

Further interest rate increases may be necessary, Bank of Canada (BoC) Governor Tiff Macklem said during an appearance in the House of Commons.

On fiscal policy, Macklem added that he does not believe it is complicating efforts to lower inflation under the present circumstances.

How Is The Canadian Dollar Performing Today?

The Canadian Dollar recorded its strongest performance against the Australian Dollar today. The table below sets out the Canadian Dollar's (CAD) percentage changes against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.02%	-0.01%	-0.35%	0.22%	0.68%	0.19%	-0.26%
EUR	-0.02%		-0.03%	-0.37%	0.19%	0.68%	0.17%	-0.30%
GBP	0.01%	0.03%		-0.34%	0.22%	0.71%	0.21%	-0.26%
JPY	0.35%	0.37%	0.34%		0.56%	1.03%	0.52%	0.08%
CAD	-0.22%	-0.19%	-0.22%	-0.56%		0.48%	-0.03%	-0.48%
AUD	-0.68%	-0.68%	-0.71%	-1.03%	-0.48%		-0.49%	-0.98%
NZD	-0.19%	-0.17%	-0.21%	-0.52%	0.03%	0.49%		-0.44%
CHF	0.26%	0.30%	0.26%	-0.08%	0.48%	0.98%	0.44%

Percentage movements between the major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, selecting the Canadian Dollar on the left and following that row across to the US Dollar gives the percentage change for CAD (base)/USD (quote) in the corresponding cell.

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Bank of Canada: Key Questions Answered

How does the Bank of Canada's role affect the Canadian Dollar?

Headquartered in Ottawa, the Bank of Canada (BoC) determines Canada's interest rates and conducts its monetary policy. Policy decisions are taken at eight scheduled meetings each year, with additional emergency meetings convened when necessary. Maintaining price stability is the BoC's principal mandate, meaning inflation should remain within 1-3%. To meet this objective, it primarily adjusts interest rates upwards or downwards. A relatively high interest rate usually strengthens the Canadian Dollar (CAD), while the reverse generally applies when rates are relatively low. Its policy toolkit also includes quantitative easing and quantitative tightening.

How does Quantitative Easing (QE) work, and what does it mean for the Canadian Dollar?

When conditions become extreme, Quantitative Easing is a policy option available to the Bank of Canada. Under QE, the BoC prints Canadian Dollars to purchase assets, typically government or corporate bonds, from financial institutions. The Canadian Dollar usually weakens as a result. This measure is a last resort when interest rate cuts alone are unlikely to deliver price stability. During the Great Financial Crisis of 2009-11, the Bank of Canada deployed QE after banks lost confidence in one another's capacity to repay debt, causing credit to freeze.

How does Quantitative tightening (QT) work, and why does it matter for the Canadian Dollar?

Once an economic recovery is under way and inflation begins to climb, Quantitative tightening (QT) reverses the earlier process of QE. Under QE, the Bank of Canada supplies liquidity to financial institutions by purchasing government and corporate bonds from them. QT, by contrast, involves the BoC halting further asset purchases and no longer reinvesting principal repayments from maturing bonds in its existing holdings. This is generally supportive, or bullish, for the Canadian Dollar.