The confluence of rapid Canadian interest-rate hikes and the corresponding decline in the value of the Canadian dollar is fuel for some B.C. businesses – particularly those that export to the U.
S. and have Canadian employees. While both the Bank of Canada (BOC) and the U.
S. Federal Reserve (U.S.
Fed) are cutting interest rates, the BOC has snipped more rapidly, slashing the country’s key interest rate in four successive reductions to 3.75 per cent , from five per cent in May. The U.
S. Fed sets its federal funds target rate in ranges, as opposed to exact rates. Its rate is now in the 4.
75-per-cent-to-five-per-cent range, down from May, when it was in a range between 5.25 per cent to 5.5 per cent.
Investors therefore get significantly higher returns in investments in U.S. treasuries than in Canadian interest-bearing products.
That steers investment to the U.S., driving demand for U.
S. dollars more than Canadian ones. The loonie’s slide started weeks ago, after hitting a six-month high on Sept.
24 , in part because the buzz in Canadian financial circles was that the BOC would make an outsized cut this month. Investment-industry watchers were not surprised when the BOC on Oct. 23 cut its key interest rate by 50 basis points – the largest such cut since March 2020, when the world was adjusting to the COVID-19 pandemic.
Foreign-currency market participants similarly anticipated the cut, and future cuts, which was likely why the Canadian dollar has declined in the past four .
