US interest rate cuts?

Question

Since the Fed cut rates by half a point in the US, what impact will that have on Canada interest rates?

Answer 1

It depends on the overall Canadian economy and the Canadian Government priorities. But right now there is a strong Canadian dollar and is continuing to rise. It is hurting goods shipped to the US as they are more expensive to them, so the US buys less. The government has to decide if they are okay with that or if the economy overall is buoyant, and say things like oil and electricity that the Americans will just have to pay the higher price if they want it.

So the change you state. If the US reduces interest rates, some people will take their American money out of their American Investments as they are now making less. Some of that American Money will be used to purchase Canadian Investments. Thus the Canadian dollar is pushed up. If Canada priority is not to have a higher valued Canadian Dollar, we would lower the interest rates too. If other things are a bigger concern, like inflation or we want to attract extra investments, we wouldn't react.

Generally, stability is better and Canada eventually reacts with changes in a similar direction. Maybe not the same change in amount, maybe not right away. You don't want to be too predictable and have the speculators making all the money.

Answer 2

Canada?

That was curve ball!