Whither the loonie
BMO Nesbitt Burns believes the Canadian dollar is nearing its bottom.
It’s not there yet, according to BMO and others, but it’s getting close.
So much depends on what happens with oil prices and the diverging monetary policies of the U.S. Federal Reserve and the Bank of Canada.
From where BMO sits, the loonie will fall “modestly further” to about 74 cents (U.S.) when the Fed finally launches its first interest rate hike.
Observers see that possibly happening next month or early next year.
“Much like oil prices, the Canadian dollar is carving out a bottom,” said BMO senior economist Sal Guatieri, who expects the loonie to perk up to 78 cents by the end of 2016.
That’s good news for some, like exporters, and bad news for others, like Canadian snowbirds.
“So long as the currency stays below purchasing power parity (estimated by Statistics Canada at around 85 cents U.S.), it will provide a competitive lift to the economy,” Mr. Guatieri said in a new report.
“And, unless Canadian companies raise their productivity game or resource prices take flight again, the economy will need this booster shot.”
The loonie has been just around the 75-cent mark today.
Wilkins on housing
The Bank of Canada’s number-two policy maker said the central bank remains confident that Canada’s housing sector will achieve a soft landing, just days after the OECD warned of rising risks in overheated pockets of the Canadian market.
“Our base case, and one that we outlined in the [October Monetary Policy Report], is that the housing market and household debt are going to evolve in a constructive way,” Carolyn Wilkins, senior deputy governor at the Bank of Canada, told The Globe’s David Parkinson in an interview.
“We don’t see the risk as part of our base case at all.”
Euro zone economy struggles
The euro zone economy is slowing down again.
The monetary union’s gross domestic product expanded by 0.3 per cent in the third quarter of the year, according to numbers released today by the Eurostat agency, falling short of what economists had estimated.
It was also slower growth than the second quarter’s 0.4 per cent.
Across the broader European Union, the economy grew by 0.4 per cent.
The German and French economies, the heavyweights of the region, matched the euro zone total.
Slowing growth, and in particular a hit to exports, now puts the focus on the meeting of the European Central Bank, in December.
“The breakdown by country shows that growth in the euro area continues to be unevenly distributed,” said strategists at Société Générale.
“If we leave out Luxembourg, we still observe a significant divergence between the best- and worst-performing member countries, something that low interest rates have been unable to address,” they added, citing, for example, the rise of Spain and the relapse of Greece.