* Poloz speaks on untapped labor potential
* Trading volatile on U.S. data, political headlines
By Karen Brettell
NEW YORK, March 13 (Reuters) - The Canadian dollar weakened against the greenback on Tuesday after Bank of Canada Governor Stephen Poloz said that the country's economy could grow without spurring inflation, though investor positioning was seen as exaggerating the move.
Poloz said that there remains a degree of untapped potential in the Canadian economy, particularly in the labor market, with youth, women and indigenous people representing untapped sources of potential economic growth. are all statements he's made in the past; today what he did do is he attached a number to that growth and potential output,” said Bipan Rai, director of foreign exchange strategy at CIBC Capital Markets in Toronto.
Poloz said that expanding Canada's labor force could increase the country's potential output by as much as 1.5 percent.
“That doesn't really explain the outsized market reaction in CAD on its own. We're thinking that most of it could have been driven by positioning and also the fact that the market is sensitive on one side of the Bank of Canada's bias,” Rai added.
Poloz's speech comes after the central bank held interest rates steady last week as expected, while a speech from Deputy Governor Tim Lane on Thursday stuck to the bank's dovish message that it will be cautious in considering further increases. 2:06 p.m. EST (1806 GMT) the greenback was up 0.79 percent against the Canadian dollar CAD=D4 at C$1.2937.
The U.S. dollar had weakened against the loonie earlier on Tuesday after data showed that U.S. consumer prices cooled in February and after President Donald Trump said he was replacing U.S. Secretary of State Rex Tillerson with Central Intelligence Agency Director Mike Pompeo. 10-year Canadian government bond yields CA10YT=RR fell to 2.21 percent, from 2.24 percent late Monday. (Editing by Jonathan Oatis and James Dalgleish)