June 23, 2014 / 6:44 AM / 3 years ago

Canadian dollar strength not a problem, says finance minister

LONDON (Reuters) - A rise in the Canadian dollar against its U.S. equivalent does not suggest that markets think Canada has an inflation problem and faces higher interest rates, its finance minister Joe Oliver said on Monday.

Canada's Finance Minister Joe Oliver speaks during Question Period in the House of Commons on Parliament Hill in Ottawa June 17, 2014. REUTERS/Chris Wattie

Oliver told broadcaster CNBC that he expected inflation to stay around the Bank of Canada’s 2 percent target in future, after figures on Friday unexpectedly showed that it spiked to a 27-month high of 2.3 percent in May.

The data drove the Canadian dollar to a five-and-a-half month high against the U.S. dollar, and some economists said there was now talk that Canada might need to raise interest rates.

“It’s pretty obvious if you look at energy prices and our dollar, they relate pretty closely together. So I don’t think that when our dollar goes up, it’s necessarily a sign that we have a problem. They (markets) might be saying quite the opposite,” Oliver said.

Canada’s central bank had previously feared the country was vulnerable to deflation if it was hit by an economic shock.

Oliver said that risk seemed to have diminished.

“Overall we are looking at inflation in and around the 2 percent level. That is pretty healthy,” he said.

Canada’s housing market - which has boomed in recent years but is now showing some signs of cooling - was not something Oliver said he was especially worried about, although he was watching it closely.

Weakness in Canadian exports reflected poor demand in overseas markets rather than a lack of competitiveness or an overvalued currency, he added.

Oliver is in London and other European capitals this week as part of a trade and investment promotion tour.

Reporting by David Milliken; Editing by Andrew Heavens and John Stonestreet

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