When it comes to interest rates here in Canada and around the world, the only thing we know is that we don’t know.
For the past 4 years economists around the world have expected interest rates to increase and not go lower.
What we do know is that Stephen Poloz, the Governor of the Bank of Canada, has been a huge supporter of a low Canadian dollar. He has said many times over the past few months that “Canada is fine but our economic recovery will follow that of the US”. This has been telegraphing to currency traders that Canadian interest rates will be well below US interest rates for some time to come. In response to this, currency traders have invested ‘long’ US dollars and ‘short’ Canadian dollars.
Governor Poloz was the past President and CEO of Export Development Canada and understands the importance of a weak Canadian currency in the exporting business.
January 21st, the Bank of Canada, in a surprise move, lowered overnight interest rates by 0.25% to provide support to our economy because of the decline in oil prices. This caused the Canadian dollar to decline further.
In late March, Governor Poloz said the slump in oil prices is having an ‘atrocious’ effect on the Canadian economy however a cheaper Canadian currency and a US economic revival should help Canadian exports drive an economic recovery.
Some believe the Bank of Canada could cut rates in Q2 of 2015. This would, in turn, put more downward pressure on the Canadian dollar. Governor Poloz has said that Canada’s central bank still has many options to help our economy, if needed. This includes pledging to keep interest rates low for a prolonged period of time.
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