TORONTO, Oct 8: The Canadian dollar rose back above 85 US cents on Friday, while bond prices mostly retreated, as a business survey showing optimism about Canada’s economic outlook built the case for more interest rate hikes.
The currency finished at C$1.1754 to the US dollar, or 85.08 US cents, up from C$1.1820 to the US dollar, or 84.60 US cents, at Thursday’s close.
In its quarterly business outlook survey, the Bank of Canada said companies are optimistic about the economic outlook and sales growth, while many expect inflation to be above 3 per cent over the next two years.
The government report does suggest that the economy is still firing on all cylinders, and there’s no reason to stop from tightening going forward, with respect to bank rate increases, said Jack Spitz, director of foreign exchange at National Bank of Canada.
It’s a bullish report for the Canadian dollar.
The hawkish business outlook survey sent most bond prices lower, as it strengthened expectations of an Oct. 18 rate hike. Rising rates generally send bond prices down as it makes their fixed payments less attractive.
The report highlighted that labour shortages are becoming more apparent to businesses, and it indicated an upturn in inflation expectations. That’s largely attributed to the recent spike in energy prices, but nonetheless the Bank of Canada will pay close attention, Sal Guatieri, senior economist at Bank of Montreal.
The three-month when-issued T-bill yielded 2.98 per cent, up from 2.95 per cent at the previous close. —Reuters
