The Canadian dollar reached yesterday the highest level in three years against the US currency, before retreating today, on the speculation that growing inflation in Canada and improving global economy will prompt the central bank to resume interest rates increases.
Today’s report from Statistics Canada is expected to show an annual inflation growth by 3.6 percent in June, following the 3.7 percent increase in May. Analysts believe that rising inflation will spur policy makers to boost borrowing costs. The Bank of Canada said in statement on July 20 that “some of the considerable monetary policy stimulus currently in place will be withdrawn”. Notice, that the bank wasn’t using the word “eventually” as in previous statements. The statement also spoke about threats to growth of consumer prices:
The three main downside risks to inflation in Canada relate to sovereign debt concerns in Europe, headwinds from the persistent strength of the Canadian dollar, and the possibility that growth in Canadian household spending could be weaker than projected.
Concerns about the problems in Europe will likely subside for some time, and that’s increase potential growth of Canada’s inflation. On the other hand, the treat from the strength of the Canadian currency is even more prominent now.
USD/CAD traded at 0.9447 as of 3:58 GMT today after opening at 0.9431 and reaching yesterday 0.9421, the lowest level since November 2007. EUR/CAD fell from 1.3603 to 1.3591 and CAD/JPY advanced from 82.94 to 83.12.
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