By Vicki Schmelzer

NEW YORK (MNI) – News that Bank of Canada Gov. Mark Carney will be leaving
to become the next Bank of England governor as of July 1 has weighed only
modestly on the Canadian dollar, analysts said.

Indeed, the loonie is unlikely to suffer in a major way even if the next
BOC governor is a central bank outsider, they said.

Dollar-Canada, currently at C$0.9930, topped out around C$0.9960 Monday,
and struggled to vault C$0.9950 Tuesday.

The lack of larger negative reaction suggests there will be global investor
demand for the loonie regardless of who will be at the helm after Carney steps
down from his current post June 1.

“The knee-jerk reaction to the announcement was largely unwound before the
close of the North American session yesterday,” analysts at Brown Brothers
Harriman said in a research note. “Carney’s move to the BOE does not take place
for several months, during which other monetary decisions are likely.”

The market also was consoled by the knowledge BOC governors typically have
been appointed from within.

This trend would, if followed, puts Senior Deputy Gov. Tiff Macklem in
strong position to succeed Carney, though it is too early to say. Macklem was
appointed for seven years beginning July 1, 2010, and is the BOC’s chief
operating officer, and was a longtime senior figure at the Bank and Finance
Department.

“The most likely candidates for the role of Governor are Tiff Macklem,
currently Senior Deputy Governor at the BOC, Jean Boivin, currently Associate
Deputy Minister and G-7/G-20 & FSB Deputy for Canada and Don Drummond, currently
at Queen’s University,” said Charles St. Arnaud, economist at Nomura.

All of these candidates would bring something of value to the table, he
said.

“However, given his extensive experience within the BOC and at the
Department of Finance during the financial crisis, Mr. Macklem may have a slight
edge, while Mr. Drummond would bring experience from both the public and the
private sector and Mr. Boivin would bring his knowledge as a well-respected
researcher on monetary policy,” St. Arnaud said.

If an BOC insider is chosen, there would be no need for a “long
transition,” and so the announcement might come as late as March or April,
whereas if an outsider, such as Drummond, is chosen, the candidate “would need
time to get familiarized with how the BOC Board worked,” he said.

The initial slippage in the Canadian dollar, in response to the Carney
announcement Monday, was seen as “a loss for Canadian monetary policy,” St.
Arnaud said.

The market soon came to realize that “Mark Carney is still in the job until
June,” which means a continuation of monetary policy until then, he said.

In addition, monetary policy at the Bank of Canada is decided by the
governing council by consensus, not by a single member’s views, he said.

“So, Governor Carney’s leaving won’t change direction for Canadian monetary
policy,” St. Arnaud said.

The Canadian dollar has been on the rise since mid November, in line with
overall improved risk sentiment as fears have eased about the U.S. fiscal cliff,
the eurozone peripherals, and a larger China slowdown.

Dollar-Canada peaked at C$1.0056 Nov. 16, and has made steady progress
lower since, with an eye now on the 55-day moving average around C$0.9881 and
the Nov. 7 low near C$0.9870.

“Any time the Canadian dollar weakens, there are buyers waiting,” said
Steve Butler, director of foreign exchange at Scotia Capital in Toronto.

Dollar-Canada rallies towards parity or C$1.0020 will find a wide variety
of “fresh Canadian dollar buyers,” official and corporate, eager to enter into a
loonie long, he said.

“I don’t see a lot of topside in dollar-Canada, he said.

A clear-cut break below C$0.9880 in dollar-Canada would suggest scope for a
return to the early to mid-October low in the C$0.9730-C$0.9760 zone, Butler
said.

From a tech perspective, George Davis, chief technical analyst at RBC
Capital Markets, was keeping an eye on C$0.9917, a key support trendline for
dollar-Canada.

“If we close below C$0.9917, the resulting trend reversal would suggest
that the multi-month corrective phase is coming to an end,” he said.

“This would then shift the focus down to C$0.9842 and C$0.9766 as sentiment
changes from bullish to more bearish,” he said.

As for possible FX market reaction to the new BOC governor when the
announcement is made, Davis did not see a larger negative C$ impact.

“If we get an outsider appointed as BOC governor, I think that we might see
a 50-75 point bounce higher in USD/CAD (all other things being equal), but I am
not expecting an overly negative reaction,” he said.

–MNI New York Bureau; tel: +1 212-669-6438; email: vschmelzer@mni-news.com

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