How to automatically reload raster layers if source is changed in QGIS?

I suppose your question does not include change detection, as your sample only concerns QgsMapCanvas.refresh()

Instead you have to call QgsRasterLayer.triggerRepaint()

If your layer is called myLayer:

myLayer.setCacheImage( None )
myLayer.triggerRepaint()

The same method exists for vector layers as well.

For low overhead file change notification I'd propose looking into Qt's QFileSystemWatcher, which makes use of inotify on linux and similar techniques on other platforms.

from PyQt4.QtCore import QFileSystemWatcher

def refreshLayer():
    myLayer.setCacheImage( None )
    myLayer.triggerRepaint()

watcher = QFileSystemWatcher()
watcher.addPath( '/path/to/your/raster' )
watcher.fileChanged.connect( refreshLayer )

Of course this can be combined with an MD5 check as proposed by nickves or a modification time check with os.stat (Nathan W proposal).

You can check if the file hash has changed between intervals

eg:

def md5checksum(fp):
        import hash
    with open(fp, 'rb') as fh:
        m = hashlib.md5()
        while True:
            data = fh.read(8192)
            if not data:
                break
            m.update(data)
        return m.hexdigest()

import time
import copy

a,b = str(),str()
while True:
    a =  md5checksum(fp) # file
    if a != b:  # the file has changed, do what you want
        myLayer.triggerRepaint()
        b = copy.copy(a) #shallow copy, otherwise a and b will point at the same object
    else:
        sleep.time(1) #wait for 1 sec, then recheck

It's a bit hackish, but the underline idea is valid

(The md5 hash check found here)