Canadian dollar hits highest level in two months

Mar 24, 2022

A higher interest rate is being used by the Bank of Canada to slow down inflation and rising oil prices.

By Andrew Joseph, Farms.com; Image via www.pixabay.com

According to the latest report from the Farms.com Commodity Research Team, the Canadian dollar is being pressured by a rising American dollar index, but is being supported by the higher Bank of Canada interest rate—raised by 0.5 percent in March—that is being used to quell our inflationary pressures and rising crude oil prices.

As a result, the Canadian dollar has strengthened to its highest levels in the past two months.

The commodity Canadian currency has been, per the report, mainly trading sideways between $0.77 - $0.8140.

Additional good news is the Bank of Canada’s revelation that "economic growth in Canada was very strong in the fourth quarter of last year at 6.7%. This is stronger than the Bank’s projection and confirms its view that economic slack has been absorbed."

However, said the Commodity Research Team, inflation is now expected to be higher in the near term than what was projected in January of 2022, and that there is a possibility of longer-run inflation expectations drifting upwards.

The recent spate of geopolitical risks—see Ukraine/Russia—have contributed to increasing commodity prices. This, alongside the positive economic data, has seen government bond yields in Canada rise to its highest levels since November of 2018.

The Canadian economy’s strength as indicated by the Consumer Price Index (CPI) via a 30-year high of 5.7 percent year to year in February of 2022, noted that even while energy and food prices helped with the gains, even with out those two components, price growth was still up by 3.9 percent year to year—exceeding any wage gains.

The Team suggested that high inflation will negatively affect consumer spending over the next few months, retail sales for January 2022 were strong with a 3.2 percent gain with spending seeing gains on motor vehicle/parts, furniture, electronics, and building materials—perhaps a hangover effect from the holiday season or simply a relaxation of Covid-19 rules. As well, the unemployment rate below its pre-pandemic level.

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