BoC’s Macklem plays down fiscal risks, keeps rate hikes on the table

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

On fiscal policy, Macklem added that he does not believe it is making inflation harder to bring down under current conditions.

Canadian Dollar: Today's Currency Performance

Against the Australian Dollar, the Canadian Dollar recorded its strongest performance today. The table below sets out today's percentage changes in the Canadian Dollar (CAD) 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 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. To read CAD (base)/USD (quote), for instance, select the Canadian Dollar on the left and follow that row horizontally to the US Dollar column. The intersecting cell gives the percentage change for that pair.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Bank of Canada: Key Questions Answered

The Bank of Canada's role and its impact on the Canadian Dollar

Maintaining inflation within 1-3% is central to the Bank of Canada's primary mandate of price stability. Based in Ottawa, the Bank of Canada (BoC) sets Canada's interest rates and oversees monetary policy. Decisions are taken at eight scheduled meetings each year, with emergency meetings convened as needed. Interest rate increases and cuts are its principal means of maintaining price stability. Higher rates relative to those elsewhere generally support the Canadian Dollar (CAD), while lower rates tend to have the opposite effect. Its toolkit also includes quantitative easing and quantitative tightening.

Quantitative Easing (QE): How it affects the Canadian Dollar

When interest rate cuts alone are unlikely to deliver price stability, the Bank of Canada can turn to Quantitative Easing (QE) as a last resort in extreme circumstances. Under QE, the BoC prints Canadian Dollars to purchase assets from financial institutions, typically government or corporate bonds. The policy generally weakens the CAD. 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 debts, causing credit to freeze.

Quantitative tightening (QT): Its effect on the Canadian Dollar

Once an economic recovery is under way and inflation begins to rise, quantitative tightening (QT) reverses the earlier QE process. Under QE, liquidity is supplied to financial institutions through Bank of Canada purchases of government and corporate bonds. With QT, the BoC ceases further asset purchases and no longer reinvests principal repayments from maturing bonds in its portfolio. This generally supports the Canadian Dollar and is regarded as bullish for the currency.