If the Bank of Canada’s rate falls too far below the Fed’s, it could negatively affect the loonie, said Allan Small, senior investment adviser at IA Private Wealth. This would make imports from the U.S. — Canada's biggest trading partner — more expensive and put upward pressure on inflation, though he added this isn’t something that happens overnight.
It’s a different story in Canada, where last week, the Bank of Canada announced its first interest rate cut in more than four years after a steep hiking cycle aimed at tamping down inflation. Canada’s economy is more sensitive to interest rates, in large part because Canadians have five-year mortgage terms, while in the U.S., terms are 30 years, said Brianne Gardner, senior wealth manager of Velocity Investment Partners at Raymond James Ltd.
Historically, a difference of 100 basis points, or one percentage point, has been a “comfort zone,” she said.
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