News
The state of the Canadian economy
Shane Thomas of HiFX looks at the current condition of the Canadian economy and the affect this could have on those transferring currency
The Bank of Canada kept rates on hold this month at 4.25 per cent, which was widely anticipated, but the Bank did maintain a hawkish bias on inflation in its accompanying statement: "There is an increased risk that future inflation will persist above the 2 per cent inflation target and that some increase in the target for the overnight rate may be required in the near term to bring inflation back to the target."
This gave the Canadian dollar a further boost against sterling as future interest rate rises are now viewed as almost inevitable and investors seek to maximise their return ahead of the interest rate increasing.
High energy prices are the principle reason for inflation pressures in many global economies, but in particular Canada as it is the biggest oil-producing nation in the world. When oil prices decrease it will generally boost consumer income around the world, but the recent increase in prices has hit the consumer again.
It isn't just the increase in oil prices, however, that has contributed to increasing inflation pressure in the Canadian economy over the last month. Unemployment in Canada is at 6.1 per cent, close to an all-time low, resulting in wages pushing higher because employers need to pay more to attract the right staff. Average weekly earnings have increased 3.2 per cent year-on-year.
The strong performance of the equity and housing markets has also buoyed consumer spending in Canada and supported domestic demand.
Recent reports also suggest that there will be a steady expansion and that the economy is coming out of a lull with home sales and retail sales up on the previous month. Manufacturing exports rose to 5.5 per cent annually and vehicle exports returned to normal levels after a sharp decline in the forth quarter of 2006.
The net result has been sterling versus the Canadian dollar moving progressively lower throughout the month of May, from a high of CDN$2.2247 to a low of CDN$2.1092 to the pound, representing a 5.2 per cent move in just one month. To put this into context, for a UK migrant going to Canada and transferring £100,000 worth of assets it's a difference of over CDN$11,500 less in your pocket.
Register for your FREE emigration starter pack
Subscribe to Emigrate Canada. Read more ...
14 August 2007