MNI: BOC Sees CAD Rise Partly Fundamental, Inflation Temporary

BOC Governor Tiff Macklem said Thursday the Canadian dollar's recent strength is tied to higher commodity prices though major further gains could become a headwind, and said so far he's confident the run-up of inflation will peak around 3% and fade out.

"Commodity prices have moved higher" and "that's good news for Canada," he told reporters when asked about the currency after a speech. "To some extent the higher value of the Canadian dollar reflects that."

Canada's dollar traded at CAD1.218 Thursday and earlier this week flirted with the strongest since 2015. The currency was around CAD1.31 per U.S. dollar six months ago and has also gained recently as the BOC pared back QE ahead of the Fed and signaled interest rates will rise next year.

"If it moves a lot further, that could have a material impact on our outlook, and it's something we'd have to take into account in our setting of monetary policy," he said of the dollar. Gains that aren't tied to Canada's economic progress could become a drag on projected exports and investment, he said.

The central bank sets its policy rate -- now at a record low 0.25% -- to keep inflation in the middle of a 1% to 3% band. Macklem stuck with his estimate given last month that faster inflation is likely temporary.

"I wouldn't over rotate" inflation forecasts based on one month of surging prices, Macklem said, and inflation may fade because "large parts of the economy remain very weak."

The current inflation mandate is up for renewal this year and its success is hard to beat, Macklem said, when asked if he will seek to add an employment goal. His earlier speech said stimulus will remain in place until the economy heals, something that can't happen without stronger job gains from marginalized groups.

Macklem also said the BOC itself needs to make progress on diversity, and he's eager to end the five-month gap since Carolyn Wilkins departed as senior deputy and left the rate-setting panel without a woman or visible minority. The Governor said the search is in progress through the Bank's independent board of directors but wouldn't guarantee the replacement would be from a minority group.

"I am committed to making progress on that. It's going to be difficult to give you a specific timeline, but as I've said, it's something that's important to me, it's important to our board of directors and I do expect to see progress," he said in response to a question from MNI.