Australia surprised many by hiking interest rates yesterday. They’re the first Group of 20 country to do so since the global recession began.
That’s got some looking for parallels between Australia and Canada. One parallel is with housing prices—which have rebounded strongly in both countries.
A TD report yesterday said: “The Bank of Canada could very well follow suit [and raise rates] if Canadian real estate continues to heat up.” TD suggested the Bank of Canada is watching to see if Canada’s record-low interest rates may be too “stimulative”—particularly with respect to housing prices.
On the other hand, TD also says:
a) Canadian economic fundamentals “will remain weak” into next year
b) The BoC is more focused on inflation threats—which are presently minimal.
c) The BoC views Canada’s recent strength in MLS sales as “temporary.”
In addition, while Canada’s economy is somewhat similar to Australia—we’re being weighed down by our neighbour to the south. By contrast, Australia has a more autonomous recovery already underway.
As a result, if this Australia news does raise the odds of surprise rate increases in Canada, it likely does so only marginally.
More from the National Post and Globe & Mail…
Last modified: April 28, 2014
“By contrast, Australia has a more autonomous recovery already underway.”
To reiterate, Australia has a close trading relationship and are more dependent on the growth of SE India and in particular, China.
Hi Bob,
Thanks for the note. A few key points…
* Japan is Australia’s largest export market as of Feb 2009. They account for $50.6 billion in 2008 (free on board value terms). This is followed by China ($32.5 billion), Republic of Korea ($18.5 billion) and India ($13.5 billion). Source
* This contrasts with Canada, where roughly 70% of exports go to the U.S., a much weaker economy with fewer long-term growth prospects.
Cheers,
Rob
Rob
I just wanted to say without prejudice that this is the most essential website in Canadian real estate. I look forward to your viewpoints each and every morning.
Thank you for continuing to provide all these invaluable updates.
Larry
Rob – I have to echo Larry’s comments. I am not in the industry, but started following your site a few months back while on the verge of switching my variable mortgage to a fixed. Although I have now switched over, and no longer have any mortgage decisions to make for a couple of years, I can’t stop reading your blog. You put everything into plain, understandable language, and, (dare I say), even make the topic exciting! I will be much better informed when making my next mortgage renewal decisions thanks to you and Melanie.
Tricia
Tricia & Larry,
Thanks for making our weekend. :)
Happy Thanksgiving!
Rob
Nice article. I liked it a lot.