Loonie Continues to Rise, Places Pressure on BOC

As we approach the Bank of Canada’s next rate announcement, the waters are muddier than they have been in recent months.

With Statistics Canada’s latest release of inflation data, suggesting that figures have reached highs not seen in the last eight years, the seemingly obvious answer is that a rate hike is completely off the table in the short term- and perhaps even in the immediate future too.

Enter the high-flying loonie.

As of Friday, the Canadian dollar was at $1.04, and has hovered close to that high level since then.

This creates a bit of a dilemma for Mark Carney. The loonie continues to rise, which can be considered an indicator that economic fundamentals in this country are continuing to rebuild, and to gain traction and stability.  Seemingly, with the Canadian Dollar so firmly entrenched, there would be confidence to march ahead with the rate hike that so many have been predicting for so long. It has never been a case of if, but when.

So then, the loonie, and the associated economic activity indicate that interest rates, in their current state, could be a cause for concern for the Bank of Canada.

What may be the nail in the interest rate coffin, is the release of the jobs report this coming Friday—which will add another elemental piece to the economic picture in this country.

In another sign, many of the big banks raised interest rates on Tuesday, which is often a pre-cursor to a rate hike. Royal Bank, TD Bank and Laurentian Bank all raised the posted rate for a five-year fixed-rate mortgage by 0.15 percentage points to 5.54 %.

Despite all of the information this week, one cannot deny the consumer price shocker released last week. Stats Can reported that consumer prices rose a staggering 3.7% year over year, far surpassing both analyst expectations, and comfort level of about 2.0%.

There are no doubt ample indications in all directions to suggest what way rates will head on Jul 19. There have certainly been economic tea leaves scattered; it is really just how you care to read them.

Tuesday, 05 July 2011 Newsroom Property Wire Canada