Briefing Highlights
- Canadian dollar near 77 cents
- Peso’s showing ‘particularly galling’
- Many now see rate hike in July
- What analysts say about the BoC
- Global markets at a glance
- Home Capital lifeline cost $210-million
- U.S. economy grows 1.4% in first quarter
Loonie hits 77 cents
The Canadian dollar hit the 77-cent mark today, leading economist David Rosenberg to question why that took "so bloody long."
The loonie has been rallying along with expectations of a Bank of Canada interest rate hike, which many observers now believe could come within a couple of weeks.
This began in mid-June, when central bank senior deputy governor Carolyn Wilkins signalled that she and her colleagues were preparing to raise their key overnight rate from its current 0.5 per cent.
That has only picked up steam, and Wednesday saw new projections as Governor Stephen Poloz and deputy governor Lynn Patterson signalled much the same thing.
So far today, the loonie has been as low as 76.7 cents (U.S.) and as high as 77 cents, sitting just below that mark by end of day.
"So everyone wants to know how it is that the Canadian dollar has been so firm of late, even with the oil price retreating to the low-$40 per barrel," said Mr. Rosenberg, chief economist at Gluskin Sheff + Associates.
"Well, it's the economy," he added.
"Ultimately, this is what a currency is going to represent. The bigger surprise is why it took so bloody long … Then again, the same can be said for the Bank of Canada, which has clearly done a reassessment of the domestic trade issues, fiscal policy south of the border and the direction of the oil price."
As several economists have noted, not only is the economic backdrop better, but fears over Canada's housing market have eased. Of course, there are still many unknowns at this point, including trade tensions with the U.S. and pending renegotiation of the North American free-trade agreement.
"I would think that any move to 80 cents (U.S.) would not be sustainable, but a move back to the low-70s would seem unlikely at this point, barring some major negative exogenous shock."
There's also the weakness of the U.S. dollar to consider, though clearly it's the Bank of Canada's signals that are driving the currency.
"We remain bullish CAD," said Bank of Nova Scotia currency strategist Eric Theoret," referring to the loonie by its symbol.
While many observers now see a rate hike on July 12, Mark McCormick isn't among them, which could make a difference to what happens next. There's also Friday's report from Statistics Canada on how the economy fared in April, which could also play into expectations.
"We also see downside risks to the GDP report tomorrow, which can serve as a bit of a purge in positioning," said Mr. McCormick, North American head of foreign exchange strategy at TD Securities.
"We also don't see the BoC hiking rates in July, so that has potential to weigh on CAD near term."
Read more
- Loonie sprints for 77¢ as end nears for era of ultra-low interest rates
- ECB chief’s comments overinterpreted by markets: sources
- Carney says BoE will discuss rate increase ‘in coming months’
- Why ‘14.1’ means Canada still risks a financial crisis
- Janet McFarland: Toronto market: Taking a breather or set for a market correction?
- After the GFC (Great Financial Crisis), the GHF (Great Canadian Housing Froth)
- Toronto, Vancouver: Housing bubbles or simply world-class cities?
- David Parkinson: Threat from housing, high debts growing: Poloz
- David Parkinson: OECD sees higher rates as housing remedy
- Chill, Canada isn’t 2006 America
- Citi on Canada: Solid outlook, housing correction, loonie that won’t hit par
July or later?
As The Globe and Mail's Barrie McKenna reports, several observers now believe the Bank of Canada will start with an increase of one-quarter of a percentage point in mid-July, which would bring its key overnight rate to 0.75 per cent.
Here's what they're saying:
"Following two weeks of being bashed over the head by Bank of Canada officials warning that rate hikes are on the table, BMO is now calling for a Bank of Canada rate hike at the July 12 policy meeting … We're looking for a second 25-basis-point hike in January. However, if the BoC continues to beat the drum on rate hikes at the July meeting, we're open to moving that call to October." BMO Nesbitt Burns
"The Bank is clearly signalling that July is on the table in terms of a rate hike. We're still leaning toward an October move given the recent weakness in the inflation figures, but there's still a few key data points ahead in April GDP this Friday and employment next week which could change our opinion." CIBC World Markets
"We now anticipate that the BoC will raise its overnight rate by 25 basis points in July, 25 basis points in October, and a further 25 basis points in 2018 Q1 - thereby removing the 50 basis points of 'insurance' that Governor Poloz implemented in 2015 and adding some insurance against upside risks as Canada's output gap closes." Bank of Nova Scotia
"A rate hike by the Bank of Canada on July 12 appears to be a foregone conclusion (it would take a disastrous jobs report on July 7 to prevent such a move). We think that this will be followed by another rate in October." National Bank Financial
Read more
- Barrie McKenna: Markets bank on July 12 rate hike from BoC
- Poloz’s three options (two of which you’ll hate if you’re buried in debt)
- Rachelle Younglai: Busy week to offer clues on rate-hike timing
Markets at a glance
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- Jacqueline Nelson: Home Capital’s lifeline cost $210-million in latest quarter
- U.S. economy grows 1.4 per cent, slightly ahead of earlier estimates