BUSINESS REPORT: Higher U.S. interest rates has the loonie on the run

File photo. An bump in America's inflation rate last month has interest rates up 2.58 per cent over last month. stock photo / GETTY IMAGES

An expected bump up in U.S. inflation for January has interest rates rising higher as American 10-year bonds are yielding 2.875 per cent this morning, up from 2.58 per cent just one month ago.

As inflation picks up in the United States and yields approach three per cent, we could see a return of volatility in American equity markets and a push even higher in the U.S. dollar.

One victim, once again, could be the Canadian dollar as investors head south to take advantage of higher rates.

The same 10-year bond in Canada is yielding investors 2.36 per cent, over one-half per cent lower than U.S. rates, with absolutely no upward pressure on the horizon.

U.S. wages are outpacing their Canadian counterpart, and the United States is at almost full employment as wage growth is expected to keep driving inflation higher, setting the stage for an even stronger greenback and a continuing defensive posture for the loonie.


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