Last weeks biggest business, currency, and travel stories: OPEC cuts production, oil and the loonie surge, US and Canadian unemployment falls, gas prices could rise, Dodge raises interesting point about raising interest rates.
US Unemployment Falls
Unemployment in the US fell to the lowest level in nine years last month. According to the US Labor Department the economy added 178,000 jobs and the unemployment rate is just 4.6%. Additional figures show that the US economy grew at a rate of 3.2% in the third quarter of 2016. Despite this average annual earnings fell by 0.1%. Strong economic performance will increase the likelihood of a rate rise which would boost the already strong USD.
OPEC Cuts Production
OPEC (the Organisation of Petroleum Exporting Countries) finally reached a deal to cut global production on Wednesday, causing oil prices to jump 14% (and rising). A global oil oversupply caused the price of oil to tumble since the end of 2014. OPEC plans to cut production by 1.2 million barrels, and expects non-OPEC countries to cut a further 600,000 barrels per day. Russia, which has been hit hard by a combination of Western sanctions and low oil prices, has promised to cut 300,000 barrels. The loonie is closely linked with the price of oil and rose 0.19 cents to 75.28 cents.
Canada Adds Jobs
Canada’s economy added 10,700 jobs this November, causing the jobless rate to fall to 6.8%. Canada has added 183,000 jobs over the last year, but many of these jobs are part time. Newfoundland and Labrador has the highest unemployment rate at 14.3%, while British Colombia has the lowest at 6.1%. Ontario’s jobless rate is 6.3%. Canada’s economy was hit hard by low oil prices so the recent OPEC decision to cut production, the implementation of CETA, and future promised government spending should boost the economy in the coming year.
Expect a Gas Price Increase
Higher oil prices may be good for oil producers, the loonie and the Canadian economy, but it will also mean higher prices at the pumps. After last weeks OPEC announcement and subsequent price surge, the cost of a litre of gas could rise by as much as 5 cents in Ontario.
Raise Rates – Dodge
Former Bank of Canada governor David Dodge believes that central banks around the world should boost interest rates. Dodge believes that a rate increase would not hurt employment or growth if it was accompanied by government spending, and it would add greater stability to the market. Raising rates would increase the value of the loonie, but concerns over slow growth and unemployment mean that a rise is unlikely any time soon in Canada. The US Fed will likely raise its benchmark rate this month.
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