In recent days the Canadian dollar has increased to record levels not seen in years, according to analysts. This is caused by surging demand for Canada’s natural resources such as oil and copper by the global economy and the Bank of Canada’s stance on record low-interest rates. The inflation is seen in the prices of goods and services which climbed at the fastest rate in a decade fueling concerns that the country might be entering a period of persistent inflation.
The Canadian dollar has been trading at 83 cents per US dollar in recent days. This is fueled by a number of other factors such as an improving vaccination campaign, growth in the Canadian economy, and increasing demand for Canadian exports by the global economy according to Karl Schamotta, the chief market strategist at Cambridge Global Payments.
Annual inflation advanced to 3.4% in April compared with 2.2% in March, Statistics Canada reported on Wednesday. Also, core inflation which is a better measure of the underlying inflation saw a record increase. While the Bank of Canada expects the inflation hike to be only transitory, it could force the Bank of Canada to increase interest rates if the inflation proves to be more durable.
The governor of the Bank of Canada, Tiff Macklem, addressed the concerns on Thursday and ensured that the central bank will take action if needed.
The big jump in the Canadian dollar has increased the purchasing power of Canadian consumers who are buying goods that are made abroad or who are looking to travel abroad. While it has made it difficult for exporters who want to sell products in international markets.
“I think the Canadian dollar is reaching the end of this growth to some extent”, Schamotta said.
References:
1) Hagan, S. (2021, May 19). Canadian consumer prices climb at fastest pace in a decade - BNN Bloomberg. BNN. https://www.bnnbloomberg.ca/canadian-consumer-prices-climb-at-fastest-pace-in-a-decade-1.1605734.
2) Hughes, S. (2021, May 19). The loonie is soaring - and it isn't just an oil story. financialpost. https://financialpost.com/news/economy/the-loonie-is-soaring-and-it-isnt-just-an-oil-story
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