News | Finance: The loonie is climbing after the Bank of Canada raised its benchmark rate to 1.5%

Finance: The loonie is climbing after the Bank of Canada raised its benchmark rate to 1.5%

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The Canadian dollar climbed versus the greenback Wednesday after the country's central bank raised its key rate by 25 basis points to 1.5%, marking the fourth hike since last summer.

The loonie rose 0.45% against the dollar following the announcement, which economists had widely expected.

"Canada’s economy continues to operate close to its capacity and the composition of growth is shifting," the central bank said in a statement. "Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data."

The policy meeting comes days after a strong jobs report. Canada added 31,800 jobs last month on a seasonally-adjusted basis, according to Statistics Canada, which beat economist expectations. Wages also picked up at a solid pace of 3.6% year-over-year.

June also saw a comeback in the housing market, which had been sluggish this year amid the implementation of stricter mortgage rules. Construction starts jumped 27.9% last month, Canada Mortgage and Housing Corporation said Tuesday, to a seasonally-adjusted 248,138. Economists had expected housing starts to come in at around 210,000.

Stephen Brown, a senior economist at Capital Economics who specializes in Canada, said a strong rebound in construction jobs showed that earlier declines "were due to unseasonably cold weather rather than a sign of trouble in the housing market."

The central bank noted increasing tensions between the US and Canada, saying it had considered in its decision the estimated impact tariffs would have on the economy.

President Donald Trump in May refused to extend steel and aluminum tariff exemptions to allies, including Canada. Canadian Prime Minister Justin Trudeau hit back with retaliatory tariffs on $12.6 billion worth of US products.

"Although there will be difficult adjustments for some industries and their workers, the effect of these measures on Canadian growth and inflation is expected to be modest," the statement said.

Mark McCormick, head of North American FX strategy at TD Securities, cautioned the tariffs could weigh on the Canadian dollar.

"In the context of global trade tensions and the weakening macro story in Canada, we doubt the hike will do the loonie any favors," McCormick said.

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(Markets Insider)
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By Kwame Ntow 11/07/2018 10:05:00