Fed rate hike fears ripple through Canada, world

Stephen Poloz, governor of the Bank of Canada
Cole Burston | Bloomberg | Getty Images

While Janet Yellen was telling Congress on Wednesday the Fed hopes to raise interest rates this year, the Bank of Canada was busy announcing a rate cut and downgrading the outlook for its sagging economy.

The two events are not unrelated, and Canada's tale is a forewarning of how a U.S. policy transition is already sending ripples around the world at the same time tumbling commodities prices are biting into growth.

Canada's message became particularly chilly when its central bank governor, Stephen Poloz, said the economy has now contracted for a second quarter in a row, and that the growth forecast was downgraded for the year to just 1.1 percent.

The commodity-linked currencies of Canada, New Zealand and Australia have all made new post-2009 lows against the U.S. dollar, and the central bankers in those countries have all been cutting rates as the U.S. moves to lift off from zero for the first time in six years.