Bank of Canada Governor Stephen Poloz discusses how transparency and trust help the Bank of Canada achieve its inflation target in Victoria, BC

  • BOC has seen signs that markets have become more responsive to data surprises
  • "There days there is a litany of things we simply do not know"
  • "That is why we say that the bank is particularly data-dependent right now"
  • Unknown how much trade uncertainty is holding back investment
  • Cannot mechanically floow the rate path provided by models because too much uncertainty

At the first look, the headlines don't really say anything but there is a dovish message between the lines.

The main headline here is the one I have at the top, which initially reads hawkishly with him acknowledging the market understood we were signaling a higher likelihood of a hike. At the same time, his message was also data dependency and you could argue the drop in the odds of a hike since then is also the market understanding the BOC's message.

"Our latest interest rate announcement at the end of May is a case in point. Some observers noted that instead of repeating that we would be cautious about future policy adjustments, we said that we would take a gradual approach to raising interest rates. In fact, this shift in language represented increased confidence that the economy was performing as we expected, and that higher interest rates will indeed be warranted. Financial markets understood our message," Poloz said.

However, after reading through the speech, the final lines are more telling.

"Today, as we approach our next interest rate decision, we are working to incorporate in our projections the effects of the recently announced US steel and aluminum tariffs, along with retaliatory measures, both in Canada and globally. We are also analyzing individual-level data to understand how the new lending guidelines in Canada are affecting the housing market and mortgage renewals. We expect these issues to figure prominently in our upcoming deliberations," these are all downside risks, or reasons to leave rates unchanged which is certainly dovish and may help to explain the rise in USD/CAD to a one-year high of 1.3386.

Note that there is a press conference following the speech. Watch it here: