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The Canadian dollar has shown a lot of strength thanks to positive domestic figures, a weak USD and improving oil prices. But this could backfire:

Here is their view, courtesy of eFXnews:

The most recent monetary policy statement from the BoC included a mild reference to the recent strength in the Canadian dollar tied to both better growth readings and higher oil prices. The loonie’s rebound has lowered the Bank’s expected profile for the country’s non-energy exports.

However,  since the central bank’s announcement on April 13th the currency has rallied further, reaching its strongest level since July 2015. If this strength persists, support for inflation and exports from the currency could wane faster than the Bank had anticipated.

In that scenario, look for Governor Poloz and his deputies to step up the rhetoric surrounding the Canadian dollar, by reminding markets that they have plenty of monetary policy firepower remaining.

Canadian economy April 2016

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