Canadian dollar vs. Interest rates
The Canadian dollar ticked lower with the Bank of Canada policy statement on Wednesday. While that’s good news for exporters, don’t expect it to last. According to National Bank economist Paul-André Pinsonnault, currency traders had been pricing in some modest probability that Carney might actually cut rates.
Instead, Carney remains the only central banker in the G7 to indicate that he might actually raise rates, noting “that he considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required.”
Take a look at how the dollar has tracked the overnight rate for the past 10 years. You’ll see the loonie started its relentless climb past parity in 2004 when the Bank of Canada first started raising rates. While bottom fell out of it when the markets tanked during the financial crisis, it quickly regained its footing.
The strength in the dollar in the years since can partially be traced back to the fact Canada didn’t cut rates as deep as others within the G7. And it remains one of the few countries to raise rates at all since the financial crisis.
The Canadian dollar is expected to hover around parity through the end of the year.