Loonie tops 79 cents US
Bank of Canada raised key interest rate this week for 1st time in 7 years
The Canadian dollar topped 79 cents US on Friday, hitting levels not seen in 14 months.
In foreign exchange trading markets, the loonie rose 0.48 of a cent to reach 79.08 cents US.
The upward move in the dollar comes two days after the Bank of Canada bumped up a key interest rate for the first time in seven years. On Wednesday, the central bank pushed up the target for the overnight rate by one-quarter of a percentage point, to 0.75 per cent.
The move had been widely expected, as bank officials had been signalling over the past few weeks that they thought the Canadian economy was performing well and that past interest rate cuts had done their job.
"The currency was buoyed by the Bank's move and tone, as well as a generally softer U.S. [dollar], and a $2 rally in oil prices for the week," BMO Financial Group chief economist Douglas Porter said in a commentary. "Before wondering if the [Bank of Canada] went too far, note that the Aussie dollar popped 2.8 per cent this week, while the Mexican peso roared 3.2 per cent."
Economists pointed out that the Bank of Canada chose to boost its benchmark rate even though inflation is currently below the bank's stated target of two per cent. The bank said it believes the current softness in the rate of inflation is only temporary.
"By saying it will look past this current softness, the Bank is leaving an October rate hike on the table," CIBC economist Royce Mendes said in a commentary issued Friday. "As a result, with the [U.S.] Fed likely taking a more cautious approach in the near term, look for the loonie to remain at these stronger levels until late-2017."
Economists at TD agreed that another rate hike is coming soon — "most likely in October" — and they suggested a more gradual pace of hikes is expected after that.
North American equity markets made gains on Friday, with the Toronto Stock Exchange's S&P/TSX composite index up by 39.81 points to 15,174.81.
On Wall Street, the Dow Jones industrial average climbed 84.65 points to 21,637.74, the S&P 500 index added 11.44 points at 2,459.27, and the Nasdaq composite index gained 38.03 points to 6,312.47.
In commodities trading, the August contract for light sweet crude gained 46 cents to hit $46.54 US per barrel
and the August gold contract rose by $10.20 US to settle at $1,227.50 US an ounce.