Briefing highlights
- Canadian dollar heads toward 76 cents
- Loonie could move higher after Fed meets
- Canadian debt burden eases
- Toronto drives Canadian home prices
- Markets at a glance
Two days that moved the loonie
The Canadian dollar is driving toward the 76-cent mark, and may well push highe.
It has been quite a two-day period for the loonie, which has surged in the wake of comments from the Bank of Canada’s top officials that suggest they may raise rates sooner than some observers believed.
“It’s quite a shift in sentiment in the last 48 hours,” said Adam Cole, Royal Bank of Canada’s chief currency strategist in London.
The loonie has traded in a range of about 75.5 cents (U.S.) and 75.96 cents.
David Rosenberg, the chief economist at Gluskin Sheff + Associates, said a test of about 77 cents and then a penny more “is a good bet” at this point.
He noted the “cost advantage” of the loonie now, comparing it to two similar situations, in late 2008 and the spring of 2005, when the currency rallied sharply.
“In each episode, this explosive rebound in the loonie took a whole lot of folks by surprise,” Mr. Rosenberg said in a report.
“So one certainly cannot be blamed for thinking out loud that this is where the risk currently resides (and yes, I know all too well how uncool it is to be bullish on the Canadian dollar these days - it’s like walking around with a ‘kick me’ sign on your back. But the hurdles like energy price uncertainty, housing market excesses, nervousness over the banks are certainly all well-known at this point.”
The currency first shot up on Monday, when Carolyn Wilkins, the central bank’s senior deputy governor, painted a picture of a stronger economy that prompted markets to be on an earlier rate increase. Then on Tuesday, Bank of Canada Governor Stephen Poloz, in a media interview, did nothing to change that sentiment.
Bank of Montreal, for example, moved its projection for the first increase in the benchmark overnight rate to early next year. Some others think the central bank could move this year, raising the key rate from its current level of 0.5 per cent.
“The fundamental push is still attracting capital into the loonie,” said London Capital Group senior market analyst Ipek Ozkardeskaya.
“Yet, the probability of a BoC rate hike is no more than 30 per cent in 2017.”
The loonie’s rise since Friday has been the sharpest in such a time frame in a year, noted Bank of Nova Scotia foreign exchange strategists Shaun Osborne and Eric Theoret.
“Markets have moved to more or less fully factor in one rate hike from Ottawa in the next 12 months now (from virtually zero risk last week) and we have concluded that this week’s comments from the BoC’s leadership means that a rate increase will come this year.”
Key debt ratio eases
Household income is now rising faster than debt, leading to a lower key measure.
That measure, credit market debt to disposable income, dipped in the first quarter to 166.9 per cent from 167.2 per cent in the last quarter of 2016, according to Statistics Canada.
While elevated, it’s at least moving in the right direction for policy makers fretting over debt levels and frothy house prices. Having said that, this ratio traditionally eases in the first quarter.
Income rose 0.9 per cent, outpacing the 0.7-per-cent growth in credit.
What it means is that we basically owe $1.67 for every dollar of our disposable income.
At the same time, net worth is also rising along with stock and property values.
Household net worth, on a per capita basis, rose in the quarter to $287,700.
Home prices rise
Canadian home prices are rising at the fastest pace in the history of one index, though that’s being driven by the Greater Toronto Area.
The Teranet-National Bank home price index climbed 2.2 per cent in May, the fastest for the month of May in records dating back over 19 years.
“The dichotomy of the Canadian residential market is more obvious than ever,” said National Bank senior economist Marc Pinsonneault,, referring to the surge in and around Toronto and in Victoria.
Month over month, Toronto prices rose a record 3.6 per cent, Hamilton 3.1 per cent, and Victoria 2.5 per cent.
The annual increases are stunning: Toronto at 28.7 per cent, Hamilton at 23.5 per cent, and Victoria at 19.7 per cent.
Vancouver showed an annual 8.2-per-cent gain, and a 1.5-per-cent monthly rise.
Markets at a glance