Krishen Rangasamy, Analyst at National Bank Financial, explains that last week we got further evidence that the Canadian economy has largely rid itself of slack.
“Excluding the volatile food and energy components, the consumer price index was up 2.3% on a year-on-year basis, the highest in 11 years. So much so that the ex-food and energy inflation differential with the U.S. has now disappeared.”
“And yet, Canadian interest rates remain unfavourable relative to those of the U.S. Just how unfavourable? Considering a near-zero inflation differential, the Canada-U.S. 2-year yield spread is the most negative we’ve seen in the last 20 years.”
“Concerns about trade have so far restrained the Bank of Canada. But should those NAFTA-related clouds dissipate, expect the central bank to step up monetary policy normalization and eat into the U.S. interest rate advantage, something that would provide a lift to the Canadian dollar.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.