CAD on the cut
Written by A Forex View From Afar on Tuesday, March 04, 2008Back to www.thelfb.com
Now with the slowdown in US it appears Canada's growth is slowing too, and as a consequence, the new Bank of Canada Chairman together with the voting board decided to cut interest rates with 50 basis points, to 3.5%. That is the biggest cut since 2001.
The problem for Canada now is the deteriorating Trade Balance; exports to the US are lower due to sluggish demand from US consumers. Exports to US represent 80% of Canada's Trade Balance.
But with all this, Canada has more aces under its shirt then US does, Canada's unemployment is going down, corporate profits are up, and most importantly inflation is at 2.2%, inside the BoC target rate.
In case Canada is dragged into a recessionary phase, I'll blame it on the Government for putting all its eggs in one basket. Maybe they'll think a little more about diversification in the future. We have to think that it is the Loonie that will give up ground to reach parity with the Dollar and not the other way around.
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