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What Does US Debt Crisis Mean for Canadians?

Over the past couple of weeks there has been a lot of talk over the "US debt ceiling crisis". We posted about our thoughts on it just 2 days ago but the main question we keep hearing is....

RELATED POST: US Debt Ceiling: Is More Tax The Answer?


What does this mean for Canadians?
 

The Bank of Canada is concerned that the delay in getting the debt ceiling crisis addressed is resulting in investors flocking to the Canadian dollar. A strong Canadian dollar is negative for our economy. 

Here is a one-year price graph that shows the appreciation of the Canadian dollar vs. the US dollar:

USD CAN Paula Siemens The Siemens Group Vancouver Mortgage Broker

Rating agencies say it is pretty much inevitable that the US rating will drop from its coveted AAA rating, resulting in higher interest payments. This is the complete opposite outcome that the US needs.

As recent as last week we expected Mark Carney to rase rates; however, weaker than expected GDP figures out of Canada may push the Bank of Canada to leave our rates alone.

READ MORE: Here's why Carney is going to raise rates, The Globe & Mail
READ MORE:
Canada GDP shrinks in May; rate hike may seem less likely, Reuters

Any increases the Bank of Canada make could attract more foreign dollars to the Loonie which is negative for the Canadian economy. While the dollar has traded lower in the last 2 days, it is still much higher than what the Bank of Canada would like to see. Currently at 1.0456 USD, the Bank of Canada prefers to see a Canadian dollar at $.97 USD.

What do you think? Do you think we are headed for a rate hike? join the conversation and post a comment on our Facebook page!



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