"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. (Reporting by Ismail Shakil; additional reporting by Steve Scherer in Ottawa and Fergal Smith in Toronto; Editing by Sandra Maler)
(Updates throughout)
By Ismail Shakil
OTTAWA, April 20 (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.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.