Canadian Dollar Strengthens Despite Revised Outlook

In a widely anticipated move, the Bank of Canada opted to leave rates at 0.50% as the inflation picture grows more assured.  The risks of lowering rates further raise the risk of problems with taming inflation, especially at a point when the recovery in oil prices has helped temper the weakness in the Canadian dollar.  According to current forecasts, inflation is expected to reach the 2.00% target in 2017, however, growth is expected to be weaker going forward.  The Central Bank revised projections for GDP expansion downwards to 1.30% for 2016, 2.20% in 2017, and 2018 growth of 2.10%.  The main concern raised by the latest statement from the Central Bank was the troublesome conditions in certain high profile real estate markets including Vancouver and Toronto.  The reaction in the Canadian dollar was largely positive following the announcement, with the USDCAD pair falling back below 1.3000 to trend near 1.2927.

As was forecast by economists, the unemployment rate in Australia rose from 5.70% to 5.80% in June, climbing to the highest rate in 4-months, echoing concerns about the outlook for the nation. Although 7,900 jobs were added during the latest measuring period, the number of unemployed individuals rose by 9,900. The latest figures deal another blow to the Reserve Bank of Australia which has been accommodating the economy through lower interest rates. Despite interest rates which have fallen to 1.75%, there is growing speculation that the Central Bank will have to do more with unemployment on the rise once more and inflation printing well below the 2.00-3.00% targeted by policymakers. Forecasts are currently estimating rates will drop by an additional 25 basis points by the end of the year to 1.50% as the Central Bank works to spur growth, inflation, and tackle the perception of an overvalued local currency.