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

OTTAWA, April 30 Wed Apr 30, 2014 7:01pm EDT

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.

"If we have more capacity and there is more demand, having the ability to deliver will of course add directly to GDP (gross domestic product), and the investment related to it will of course add to GDP," he said.

"We're operating in a constrained fashion and so the economy is finding ways to adapt to that. It would be obviously better if there were no such constraints."

Poloz was responding to a question by a Liberal senator about the impact of Canada's "difficulties" in completing various pipeline projects.

The senator didn't name specific pipelines but was likely referring to TransCanada's delayed Keystone XL pipeline project to the U.S. Gulf Coast as well as others from Alberta to the Canadian West and East coasts. (With additional reporting by David Ljunggren in Ottawa and Alastair Sharp, Leah Schnurr, Cameron French and Solarina Ho in Toronto; Editing by Jeffrey Hodgson and Cynthia Osterman)