UPDATE 1-Bank of Canada chief says commodity prices drive value of C$

Wed Apr 30, 2014 7:01pm EDT
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OTTAWA, April 30 (Reuters) - Commodity prices will largely set the level of the Canadian dollar in a link that is almost mathematical, Bank of Canada Governor Stephen Poloz said on Wednesday, adding that policymakers in the oil-producing country have little say in the matter.

Speaking to a Senate banking committee, Poloz said the currency has proven historically to be influenced mostly by the terms of trade, largely determined by the price the country fetches on world markets for its oil, metals and other natural resources.

"Over the sweep of say 30 years it's a very good approximation," he said.

"So when the terms of trade were very weak the dollar was in the 60s (60 U.S. cents per Canadian dollar), the terms of trade are far higher now than it was and so the dollar's higher. There's no choice with this, this is almost arithmetical, the relationship," he said.

Poloz, seen by some market players as talking down the dollar to help exporters, acknowledged that the currency has lost ground against the U.S. dollar since he adopted a more downbeat outlook last October. But he insisted he is "not a fan" of any particular value.

"And as a consequence markets have decided that the Canadian dollar should be lower and that is what has happened. But we have no idea how far it will go or what it should be."

Poloz also said Canada's economy would benefit from building more oil pipelines to transport Alberta crude to markets.   Continued...