The Canadian dollar reached today the highest level in almost six weeks against the US dollar on the outlook that the central bank would continue to raise the interest rates. The currency slipped versus the euro as doubts about the strength of the US economy remains, which is bad for the Canadian currency as the US is the major trading partner of Canada.
The loonie also rose after the Basel Committee on Banking Supervision gave lenders enough time to comply with the higher capital requirements, easing the concerns that more strict regulations would cripple the banks’ ability to generate profit. Mark Carney said that the economic reason for the higher capital requirements is “compelling” and the regulators have reached “exactly the right balance” to avoid the future crises. He also added that the Canadian and global economy would benefit from the new regulations as the lower probability of the future financial crises offsets the higher borrowing costs.
The Bank of Canada increased the interest rates last week for the third time in less than four months and suggested that it may raise them further this year.
Maria Jones, the currency trader at TD Securities Inc., said:
The interest rate differential and expectations are the main driver of the Canadian dollar right now. The Bank of Canada’s very much wants to normalize rates and that has grounded market expectations and reminded the market that the Canadian economy does have solid fundamentals and interest rate levels are still accommodative and can’t last forever.
David Watt, the senior currency strategist at Royal Bank of Canada, supported this opinion:
The Bank of Canada will raise rates next year and the economy is stronger, which is positive for the Canadian dollar and provides a bullish underpinning. But the underperformance of the U.S. dollar is holding the Canadian dollar back today relative to the rest of the G10 today.
USD/CAD dropped from 1.0270 to 1.0266 today as of 17:46 GMT, following the decline to 1.0214. EUR/CAD rose from 1.3230 to 1.3363 after it slumped previously to 1.3175.
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