Bank of Canada Governor Mark Carney said in a television interview that “one of the risks to the Canadian economy is persistent strength to the Canadian dollar”. The “loonie” as the Canadian dollar is known, gained sixteen percent against the US dollar in 2009 and another 5.5 percent in 2010 to reach parity with its US counterpart.
The increase in the loonie’s value has forced the price of Canadian exports higher and adds to the complexities facing the Bank of Canada as inflation also rises. The Bank has kept the overnight lending rate at one percent since last September but pressure is mounting to lift rates higher to slow the rate of growth. The unintended consequence of a rate hike however is that it could boost investor demand for the loonie thereby pushing the value of the Canadian dollar higher.
Source: Bloomberg
