After the previous two meetings of the Bank of Canada, without imposing any rate hike, this morning, the Bank of Canada has raised interest rates, which has surprised many.
Let’s look at the data to understand this decision. The variables that central banks consider when deciding on their rate policy are issues such as the growth rate, the level of employment and of course, the inflation rate.
Growth:
The release on the growth rate of the Canadian economy recently gave a better than expected result, rising by 0.8% against the 0.4% expected by the consensus.
Employment:
Regarding the unemployment rate, it remains at 5% as for the rest of the year.
Inflation:
The inflation rate, however, rebounded slightly in the last published data, rising to 4.4% against 4.3% in the previous month.
In short, growth is better than expected, the unemployment rate is stable and we also have a rebound in inflation. The conclusion is that the rate hike is in line with the economic textbook.
In fact, in a statement issued by the Central Bank of Canada, these were their words:
“While economic growth around the world is weakening in the face of higher interest rates, major central banks are indicating that interest rates may have to rise further to restore price stability.”
Market opportunities.
In the past, we have discussed the link between the Canadian dollar and the price of crude oil, given Canada’s high oil reserves.
On this occasion, the charts show us a trend change that seems to be making a bearish breakout with a downward move towards the 1.30 to 1.28 area over the next few weeks.
I share the chart so that the audience can determine if they find the strategy attractive.
This post was last modified on Jun 08, 2023, 15:29 BST 15:29