The latest Canadian Dollar Interest rate announcement drove the USD/CAD to a two-year low compounding an extremely difficult week for the US and notably an increasingly weak Dollar.
Markets hadn’t anticipated the Bank of Canada would increase rates in September therefore, their decision to do surprised markets. The effects included a stronger CAD and diversion away from the TSX.
The Bank of Canada’s announcement to increase interest rates from 0.75% to 1% followed the previous weeks Canadian GDP figures which reached 0.3%, demonstrating an annualised growth of 4.5%. The growth fuelled in part by renewed household consumer spending which is now the most significant since the global recession.
The current rate at which Canada’s economy is growing now signifies they lead the G7 nations in terms of growth. Whilst this year’s 4.5% growth impressively has also been achieved at the fastest pace in 6 years.
Future rate hike probability fuelled further USD/CAD losses with many confident of another Interest rate hike in the coming months, provided growth stays on course. With one of Canada’s key activities being its export market the Loonies strength won’t necessarily be welcomed by all.
Following the Canadian Central Bank’s decision to raise the interest rate from 0.75% to 1% the USD/CAD hit a two-year low. The USD/CAD dropping from 1.2415 to 1.2138 the lowest since late December. Whilst talk of further Interest rate hikes will only fuel the Loonies strength against a faltering USD. Particularly in light of the continued US’s tensions with North Korea and the events surrounding the recent hurricanes that have devastated Houston and Florida. Plus, uncertainties with the US Federal Bank reshuffle will also not help.
With the sharp Canadian Dollars gains against the USD inevitably investors will look to ride the wave and take a profit. This could see USD/CAD rate normalise to phycological levels of 1.20.
This being said the strength of Canada’s growth will strongly support further rate hikes which could now potentially be implemented before the United States interest rate rises. Assisting the Loonie in the medium term. Currently, the Federal Reserve Bank will be looking to stabilise following the announcement of Stanley Fischer’s early resignation.