Diverging Interest Rates and the Canadian Dollar

Historically the US Fed Interest Rate and the Canadian Lending rate are more or less in line.  We believe that this is about to change and the implications for the Canadian economy could be interesting.

Yesterday, the US Federal Reserve raised the lending rate to 1.75% while the Canadian Central Bank has kept their lending rate at 1.25%.  This shows a fairly small but growing divergence between the two lending rates.

It is our firm belief that the Canadian Fed is afraid to raise the lending rate too much, for it could threaten to pop the Massive Credit Bubble in this country.  You can read more about the Rock and Hard Place that we believe the Bank of Canada is stuck between as we have written extensively on this topic.

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