Commodities send loonie soaring, creating quandary for Canada – by Theophilos Argitis (Bloomberg News – May 17, 2021)

The broad rally in raw materials that’s lifted prices for crops, energy and metals is a bonanza for Canada’s economy and a major challenge for the nation’s policy makers, who are under pressure to ensure that everybody benefits.

Should the commodities boom hold, it would represent a windfall for the resource-rich nation endowed with oil, natural gas and vast lands to mine and farm. Export receipts are already at near a record and poised to go higher. The value of lumber shipments alone nearly doubled in the first quarter.

But Canada’s economy is already brimming with stimulus and may hit full capacity as early as this year, according to some economists.

Elevated commodity prices are driving up the currency and longer-term rates, potentially crowding out other key sectors that may struggle to compete under a stronger Canadian dollar. The loonie is the best-performing major currency this year and is near a six-year high. Five-year bond yields are the highest in the Group of 10.

That means policy makers could face pressure to slow development, curb capital inflows and stem foreign exchange gains, as is usually the case in Canada when commodities boom.

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