FxWirePro: BoC’s Poloz indicates possibility of July hike

Canada’s bonds have suffered most this week among its peers, more than the counterparts in UK, France, Germany or Australia as the Bank of Canada (BoC) Governor Stephen Poloz indicated that a rate hike from the central bank could come as early as next month. The 10-year government bond yield in Cana da has jumped 23 basis points so far this week, almost double than that of the United States. Speaking to CNBC Europe, the Bank of Canada (BoC) Governor Poloz said that the excess slack in the Canadian economy is now being absorbed steadily, and that must be taken into account when the central bank issues a rate decision next month.

The Canadian dollar has outperformed major global peers as the Governor’s comments strongly suggest that a rate hike of 25 basis points remains in play at the July 12th meeting. The Canadian dollar which is often called ‘Loonie’ has since its bottom around 1.38 per dollar I early May, despite a steady weakness in the oil price. Bank of Canada (BoC) is now holding rates at record low of 0.25 percent and both Mr. Poloz and the Bank of Canada's No. 2 official, Carolyn Wilkins, rattled markets in June with commentary that signaled the bank was setting the groundwork to raise its benchmark rate.

The Canadian dollar is currently trading at 1.298 per dollar and we expect it to strengthen further towards 1.27 per dollar.