Rate hikes by the Reserve Bank of Australia have led some analysts to wonder if the Bank of Canada will be soon following suit. David A. Rosenberg, Chief Economist & Strategist at Gluskin Sheff, is not one of them.
As he points out in Tuesday’s Breakfast with Dave: Market Musings & Data Deciphering, Australia has a great deal more exposure to accelerating growth in China. Only 3% of Canadian exports go to China while 24% of Australian exports go there. Furthermore, Canada has much greater exposure to the moribund U.S. consumer: 75% of its exports go to the U.S versus 6% for Australia.
Yet, interestingly, the Aussie dollar lost ground after the central bank’s latest rate hike in a “sell-the-news-buy-the-rumor” kind of move. Bank of Canada Governor Carney no doubt noticed that response and might accordingly be less fearful a rate hike would strengthen the loonie (as happens most of the time due to capital inflows). And no doubt he would love to raise rates to head off the bubble-like conditions fermenting in the housing market – especially if the loonie remains well behaved and doesn’t inflict any more pain on the already hard-hit export sector.
