Canadian Dollar Falls as China Raises Interest Rates

The Canadian dollar weakened today as China boosted the lending rates to stem its economic growth, reducing appeal of growth-related currencies.

China’s decision to increase the rates had a negative impact on market sentiment. Together with the cut of Portugal’s credit rating by Moody’s, it significantly reduced investors’ willingness to risk.

The domestic economic environment also wasn’t particularly supportive for the loonie. The Industrial Product Price Index fell 0.2 percent in May from April, while the decline of the Industrial Product Price Index was 5.2 percent. On the positive side, building permits surged 20.9 percent in May, while the expected growth was only 5.1 percent.

Neil Mellor, the currency strategist at Bank of New York Mellon Corp., remains optimistic about the Canadian currency even after the drop, saying:

In terms of commodity currencies, the Canadian dollar is fairly well-placed at the moment, at least relative to the Australian dollar. The Canadian dollar will cede some ground to the U.S. dollar, but in terms of relative performance, I’d sooner hold the Canadian dollar over the Aussie, certainly for the time being.

USD/CAD advanced from 0.9631 to 0.9693 before trading at 0.9653 as of 18:48 GMT. CAD/JPY fell from 84.12 to 83.75. AUD/CAD rose from 1.0300 to 1.0317.

If you have any questions, comments or opinions regarding the Canadian Dollar,
feel free to post them using the commentary form below.