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Another huge surprise in Canada strengthens the loonie across the board: Building Permits jumped by 18% and the loonie jumps as well. This follows the excellent job figures on Friday. Will interest rates rise earlier than expected?

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Economists predicted a rise in Canadian Building Permits, but the scale was modest – 1.1%. The result, a rise of 18%, was a huge surprise. This is mostly a result of a wide range of industrial projects, that were initiated by the Canadian government, as part of the stimulus plan. Here’s a quote from Reuters:

Permits for nonresidential buildings jumped 42.4 percent as industrial projects doubled in value, largely on mining, transportation and water treatment. Institutional projects gained 50.9 percent on an expansion of educational and medical infrastructure.

This supplied a good start for the Canadian dollar’a week – USD/CAD fell instantly from around 1.06 to 1.0550. Most of the currencies are suffering from more dollar strength, a move that began after Friday’s excellent American Non-Farm Payrolls. The Canadian dollar stands strong. Also EUR/CAD falls to 1.56.

The Canadian dollar had an early answer already on Friday with its own employment figures: a rise of almost 80,000 jobs in Canada and a drop in the unemployment rate to 8.5% helped the loonie weather the greenback’s storm.

The next important figure for the Canadian dollar also comes from the housing sector: Housing Starts are published tomorrow. A bigger test awaits the Canadian dollar immediately  afterwards: The Bank of Canada makes a rate decision. BOC Governor Mark Carney isn’t expected to raise the rock bottom interest rate from 0.25%.

What Carney can do is change the wording of the BOC Rate Statement, by changing the schedule for a rate hike. The BOC is quite straightforward on future policy. Their current target for a rate hike is by the end of Q2 of 2010. Carney might announce that a hike is possible also in Q1, and this might boost the C$ even more.

On the downside, Canada’s monthly GDP, that was announced last week, disappointed with a smaller-than-expected rise of 0.4%. For more on the loonie’s week, read the Canadian dollar forecast.

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