Time to focus on the Canadian dollar?

With all of the uncertainty, surrounding the British Pound and the Euro it might be time to look elsewhere and the Canadian dollar might be a good place to start.

Data out last week showed Canada’s annual inflation jumping to 3.0 per cent, coming in well above consensus with Analysts expecting a figure 2.5 percent

This marks its highest level for many years and it seems like the higher oil prices are now starting to filter through to the Canadian consumer and the chances of the Canadian economy overheating are growing.

Many were surprised the Canadian dollar to jump further after the news.

 “With that size of a shock, the Canadian dollar probably should have moved more,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

The Bank of Canada have already raised  rates 4 times since last year to 1.5 percent and before the latest inflation announcement the odds of another hike were sitting at 20 percent but this has now grown significantly.

A 25 basis rate hike in September would push the overall benchmark interest rate to 1.75 percent which would make the Canadian dollar attractive for investors chasing a higher yield and this is bound to lend some good support.

“Today’s CPI figures are yet another data point that supports the Bank of Canada’s assessment that the economy is operating close to capacity and further rate hikes will be needed,” said Ranko Berich, head of market analysis at Monex Canada and Monex Europe.


Analyst

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