Strong loonie, strong economy

NEW YORK, N.Y. (Reuters) — The Canadian economy can continue to be successful even with a strong currency and higher interest rates, federal Finance Minister Bill Morneau said last week.

The Canadian dollar’s “current level” is a reflection of the strength in the economy, Morneau said at a conference.

“We can continue to be successful at that level,” he added.

However, he said the government should continue to invest in productivity and infrastructure.

The Canadian dollar has surged more than eight percent against the U.S. dollar this year, bolstered by two interest rate increases amid an economic performance that has put Canada at the top of the G7 pack.

A Bank of Canada policymaker said earlier this month that the central bank will pay close attention to how the economy responds to both higher interest rates and a stronger Canadian dollar.

Morneau also said he was not worried about higher interest rate. Just like a robust Canadian dollar, higher interest rates were a result of strong economic performance, he added.

Canada’s economy grew at its best pace in nearly six years in the second quarter amid robust consumer spending and energy exports. Gross domestic product grew at an annualized 4.5 percent, making for the best pace of growth since the third quarter of 2011.

However, Morneau said that despite Canada’s tightening, interest rates are still at historically low levels.

Asked about the budget deficit, the Canadian finance official pointed to a positive trend. He said the government has exceeded expectations, noting that the current budget deficit was less than one percent of gross domestic product. That was lower than expectations of a budget gap of about 1.5 percent of GDP, he added.

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