“Surprisingly, although there’s a bit of a gap now, and it’s been that way for a while between the Canadian and American policy rate, we haven’t seen a significant shift over the long run on interest rates.”
The Fed’s funds rate currently sits at a range of 5.25% to 5.5%, a full 50 basis points higher than the Bank rate, but there seems little chance of either central bank diverging dramatically from the other’s approach in the near future.
“The interest rate is only one of the factors and although you have a half-point gap between Fed and Bank of Canada policy rates, it’s remained steady,” Gosselin said. “So if the gap should really spread – if there was at one point a one-percentage-point difference – then that might have an impact on the exchange rate.
“But I think in the short term, it’s probably going to remain around that window, 72 to 76 cents or something like that.”
Could the 2% target for annual inflation be revised upwards?
Both the Bank of Canada and Fed have remained steadfast in their desire to bring inflation down to 2%, with neither institution ruling out further rate hikes despite the fact that the consumer price index has slowed significantly in both countries over the past year.