By David Parkinson
It doesn't seem to matter how loudly Bank of Canada Governor Mark Carney yells. He keeps getting drowned out by the Reserve Bank of Australia.
Australia's central bank on Tuesday raised its benchmark interest rate for the second time in less than a month, to 3.5%. And just as it did when the RBA raised rates in September, the Canadian dollar jumped on the news.
The loonie was up half a cent at 93.37 cents (U.S.) in late-morning trading. Even more tellingly, it was up 1.4% against the euro, at a two-week high of €0.6372.
Forex traders continue to bet that Canada - a resource-heavy economy similar to that of Australia, and another recent rate-hiker, Norway - could be high on the list of countries that will raise rates next.
This despite Mr. Carney's strong words last week about the dollar and Canadian economic prospects that were aimed to distance the Canadian situation from Australia and play down market hopes for a near-term Canadian rate hike. Though the Canadian economy and inflation are nowhere near what Norway and Australia have been looking at, traders are continuing to link rate hikes to commodity currencies, and betting on Canada.
Part of the enthusiasm for the loonie may have also come from the fact that, despite the rate increase, the RBA hinted it may hold steady at its December rate-setting. With at least the possibility now raised that Australia may be done with raising rates for the near term, and with the Australian dollar having already booked strong gains as a result of its rising-rate policy, forex traders are sniffing around for new rate-increase bets. Canada's name obviously keeps popping up.
Does it matter what Mr. Carney says? Sure it does. But it's going to take more than just a week of strong words to shake currency traders' convictions. Unfortunately, the market may have to see some missteps in Canada's economic recovery to be convinced - or maybe some other currency with better rate prospects to catch their fancy. (Where are you when we need you, New Zealand?)
