BoC Governor Macklem said Friday the economy was on a 'better footing' on the back of a pickup in consumer demand but noted again that the consequences of a trade war with the US would be 'severe' and the threat of tariffs was already doing economic harm, Scotiabank's Chief FX Strategist Shaun Osborne notes.

BoC to adjust the policy depending on developments

"He said a trade war would cut domestic output by nearly 3% over two years and lower the growth flight path for the Canadian economy by 2.5% in the long run. Macklem said the situation was 'fluid', however, and policymakers would make the best decision possible at the March 12th rate policy meeting. In other words, the Bank has a pretty open mind about the direction of policy and will adjust, or not, depending on developments.

"The CAD lost some ground on the crosses last week, especially against the JPY. CAD/JPY eased under 105 to trade to its lowest since last September. The cross broke below major trend support and may have further to run as markets mull BoC/BoJ policy divergence and tariff risks. Cross flows may add to broader CAD headwinds."