The answer is not clear,” said RBC Capital Markets chief equity strategist Michael Olson at UBS.
“What’s clear is that as the [U.S.] dollar strengthens, the Fed’s policy rate will move away from its 2% target, meaning investors will want to buy the U.S. currency and that means the loonie is likely to fall.”
In an apparent bid to stem the trend, the Bank of Canada indicated on Wednesday it would consider raising its key policy rate by 25 basis points to .50 per cent.
But if any such move goes ahead, the bank may be forced to act sooner as U.S. inflation continues to run at its slowest pace in about a decade.
According to a report from Bank of America Corp., the dollar is being dragged down by low oil prices, with oil prices tumbling nearly 20 per cent in June, the most since October 2008.
At the same time, the central bank is also trying to get inflation back on track with a rate hike.
The bank’s three policy rates have been held near zero for six years, meaning that the central bank’s aim is to keep borrowing and interest rates low enough to keep inflation from reaching double digits, said John Littler, economist and co-founder of Littler Wealth Management Ltd in Toronto.
“It does look as though the Bank of Canada is coming closer to realizing that goal over the next two to three years.”
As it stands, the Bank of Canada has pegged rates at a range of 1.25 per cent to 2 per cent, but this level may now be in danger of slipping further as investors look for yield in an environment of low inflation.
At the same time, the bank may also be considering cutting rates further ahead.
While the current interest-rate policy isn’t as stringent as rates under the government’s more open-ended policies of quantitative easing, it may nevertheless be the most efficient way to raise the economy’s long-term growth prospects.
With the election looming and Congress already in recess, some progressives are calling for a more radical approach to the government shutdown that might include a nationwide referendum on the minimum wage.
Speaking to C-Span Sunday, Vermont Representative Peter Welch (D-Vt.) said he thinks Congress cannot afford another shutdown this year, since the debt limit, to which the House and Senate are all bound for April 3, is likely to expire.