Bank of Canada governor Stephen Poloz is doing a lot of groundwork in advance of the Banks announcement next week on Canadian interest rates…there once again will be no movement.
But there is more to the decision for status quo than meets the eye, the overnight rates for both the U.S. and Canada have been mired along the bottom for some years now.
As the U.S. goes forward with their plan to begin the long journey to higher rates, the impact on Canada, particularly the Canadian dollar will be significant.
Even as we have seen the dollar turn more negative than usual in the past few weeks, the beginning of higher rates in the U.S. will send our dollar down towards the seventy cent target of most analysts.
In fact, there is some speculation that we may even see an interest rate cut by the Bank well before any hike, and if that coincides with the raising of rates by the U.S., then a .70 cent dollar will be a given.
And even with the lower dollar, the lack of recovery in the manufacturing and export sector has the Bank believing that the continued expansion of our service sector is pointing the way toward full economic recovery and the return of sustained, natural growth,” according to Mr. Poloz.
The problem is, that change in the recovery model will take quite some time.