Blogs & Comment

Higher interest rates in Canada?

Rate hikes by the Reserve Bank of Australia have led some analysts to wonder if the Bank of Canada will be soon following suit. David A. Rosenberg, Chief Economist & Strategist at Gluskin Sheff, is not one of them.
As he points out in todays Breakfast with Dave: Market Musings & Data Deciphering, Australia has a great deal more exposure to accelerating growth in China. Only 3% of Canadian exports go to China while 24% of Australian exports go there. Furthermore, Canada has much greater exposure to the moribund U.S. consumer: 75% of its exports go to the U.S versus 6% for Australia.
Yet, interestingly, the Aussie dollar lost ground after the central bank’s latest rate hike in a sell-the-news-buy-the-rumor kind of move. Bank of Canada Governor Carney no doubt noticed thatresponse and might accordingly be less fearful a rate hike would strengthen the loonie (as happens most of the time due to capital inflows). And no doubt he would love to raise rates to head off the bubble-like conditions fermenting in the housing market— especially if the loonie remains well behaved and doesn’t inflict any more pain on the already hard-hit export sector.