The U.S. dollar is easing from recent highs as markets react to cautious signals from major central banks, persistent inflation risks and rising oil prices.
BNN Bloomberg spoke with Karl Schamotta, Chief Market Strategist at Corpay, who said policymakers are leaning more hawkish than expected while currency markets also respond to intervention risks in Japan and shifting global growth dynamics.
Key Takeaways
- Central banks in the U.S., Canada and the U.K. held rates but signalled a more cautious and in some cases hawkish stance than markets expected.
- Policymakers remain focused on preventing inflation expectations from becoming unanchored, which could force further rate hikes.
- Oil price gains are supporting the Canadian economy overall, but benefits are uneven and offset by higher costs for consumers and businesses.
- The Canadian dollar could strengthen gradually as economic sentiment improves and geopolitical risks ease.
- Investors may need greater global diversification as long-term growth shifts toward emerging markets and reliance on the U.S. dollar becomes a vulnerability.
Read the full transcript below:
ANDREW: Okay, we have the one and only Karl Schamotta joining us now. Always great to see you, Karl. He is chief market strategist at Corpay. Thanks very much for joining us.
KARL: Great to see you.
ANDREW: Parsing through the central bank decisions yesterday in both Canada and the U.S., what was your big takeaway?
KARL: It’s interesting. It sounds very much more cautious, I think, than markets were anticipating, and if anything, a little bit hawkish — perhaps more so on the U.S. side than in Canada. But when you have three of the Fed presidents dissenting against the decision in favour of opting for more hawkish language in the statement, and you have a lot of discussion about the risks that inflation could present on the upside, I think that is something that should tell us that this is a Fed that is not going to follow President Trump’s wishes in cutting rates dramatically.
And also on the Canadian side, we did see a very neutral statement, a very neutral monetary policy report. But if you look at Macklem’s comments quite carefully, it does seem as if their reaction function might be tilted a little bit in the hawkish direction, meaning that if we were to see a rise in inflation pressure in Canada, they might raise rates more quickly than if we were to see continued softness and a downturn in the economy itself.
ANDREW: But higher rates — would they really be the right tool when it’s commodity-induced inflation or Persian Gulf-induced?
KARL: Typically not, right? And that is the assumption that most of us are relying on at this moment — that Fed and Bank of Canada officials are going to look through this energy price shock, that they’re going to follow the playbook they’ve followed for decades in focusing on what’s happening in the rest of the economy.
However, there’s one huge bugbear here, and that is that the world economy has been hit by a series of shocks in recent years, and that has led to a situation in which consumers and businesses, for that matter, are more responsive to inflation or to price changes, and may actually start to raise their expectations for inflation in the future.
So the biggest worry for central banks at this point is an unanchoring in inflation expectations that leads consumers and businesses to start raising prices. If that were to happen, it wouldn’t really matter where the inflation shock originated, because we would see it across the broader economy. And so this means, ultimately, that there is a risk that rates do resume their climb at some point.
ANDREW: I guess central bankers are a bit like animals using intimidation behaviour at mating time. They wave their antlers around — we’re ready to be tough. Because, as you say, if businesses and the public decide inflation is back, their job is going to be much harder.
KARL: Absolutely. And I really do think so. The old term for it is “jawboning.” But the idea is that psychological warfare is a very important part of a central bank’s toolkit. It’s very important to not just exert pressure on the fundamentals, but also to convey a message and communicate very effectively with participants in the real economy.
ANDREW: What is your view on the Canadian dollar over the next couple of years? This economic stimulus that the federal government is spending so heavily on will take a couple of years to pan out.
KARL: That’s right. I do think that this is putting the Canadian dollar on a more stable footing. And I do think that once we see this conflict in the Middle East come to an end, whichever way it goes, that will give us the foundation for a bit of a rally.
I think the key piece of evidence for that is the Business Outlook Survey that the Bank of Canada released last Monday, in which they’re basically showing that businesses are beginning to look through trade tensions, they’re beginning to look through a lot of the negative headwinds, and they’re turning slightly more positive on the direction of the economy.
I think this is largely to do with government policy, in the sense that this is a pretty business-friendly administration in Canada. We are beginning to see efforts to reduce interprovincial trade barriers and regulatory overhead, and we have public spending flowing into sectors like the defence sector, which ultimately could help to propel growth.
So I do think we’re turning a corner, but at the end of the day it’s going to be a very gradual lift, as you pointed out there.
ANDREW: If oil prices stay high — and there are warnings to that effect — the boss of Shell says these price increases could hold right into next year. That is good, broadly speaking, for our GDP growth, isn’t it? I’m thinking, of course, we do import a lot of oil too.
KARL: Yes, it is positive for Canadian growth at the end of the day. On an aggregate level, we are seeing increased export revenue, meaning that provinces like Alberta are doing well. Provincial treasuries are doing well, and we’re going to see downstream effects as revenues flow into other sectors of the economy.
But at the same time, there are distributional consequences. The reality is that for most of the country, oil prices are an input cost. They are something that people pay at the pump and when importing goods. So these two effects are going to cancel each other out to some extent.
So it is a positive for Canada, especially if we do see a renewed cycle of investment in the oilsands sector. But it is not an unalloyed positive, and at the end of the day, if you’re sitting at the Bank of Canada, you are trying to bridge that divide between the two forces the economy is going to be oscillating toward.
ANDREW: Karl, give us the big picture here. We hear talk about the decline of the Western world and that economic gravity is moving to Asia longer term. Would you think about putting more money to work in Asia rather than in Europe or North America?
KARL: I think so, yes. I think in general, investors should be far more diversified than they are. And I do see a lot of potential in the European economy, especially as defence spending increases and more money is put to work.
But where are the growth engines in the world? They are in Asia, in Africa, in Latin America. They’re not necessarily here at home in North America.
If I were to boil that down, I’m not so much concerned about Canadians being invested in Canada — there are a lot of great opportunities here — but the huge long position that investors have in the U.S. and the U.S. dollar does strike me as an enormous long-term vulnerability.
It has been the place to be for decades, but we should not expect that to persist for decades to come. So I do think a diversified mix of exposures really does make sense.
ANDREW: Karl, thank you very much indeed. Karl Schamotta, chief market strategist at Corpay.
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This BNN Bloomberg summary and transcript of the April 30, 2026 interview with Karl Schamotta are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
