The Canadian Dollar continued the impressive run we have seen of late, following much better than anticipated Gross Domestic Product (GDP) figures. This was the seventh consecutive positive data release meaning seven months of growth for the Canadian economy.
In July, the Bank of Canada opted to raise interest rates for the first time since 2010. Some critics argued that this wasn’t the correct time to do so and that the economy couldn’t support such monetary policy. This afternoon’s data release helped to silence those critics and also helped the Canadian Dollar to surge against the majority of its counterparts.
I believe that the reason for the Canadian Dollar’s recent surge was due to investors starting to look at the Loonie in a different light. The Canadian economy has always been heavily linked to global demand in oil. Recent reforms from the Canadian Government have tried to improve other areas of the economy so that it is not so dependent on oil.
So far, this appears to be working. Although mining, quarrying and extraction remained a large part of the economy – manufacturing grew 1.1.% and the financial sector grew 0.9%. In my opinion, and as a result of this recent growth, investors may have started to perceive the Loonie as ‘less risky’.
I wouldn’t be surprised to see the Canadian economy continue to go from strength to strength. As the Canadian economy moves further away from its dependence on oil in order to perform well, I think that the Bank of Canada will now look at raising interest rates again sometime in the future. As the rumours surrounding an interest rate remain alive, so too will the investors’ appetite for the Loonie.