Briefing highlights
- Trump ‘premium’: Investors scared of loonie
- IMF cuts Canada's economic outlook
- Vancouver home sales tumble
- Reserve Bank of India in surprise rate cut
Sudden shift
Investors are suddenly scared of the Canadian dollar, driven in part by the “Trump and Fed premium.”
So much so that CIBC World Markets believes that the loonie could tumble to as low as about 73 cents U.S. within the next few months.
“Market sentiment on [the Canadian dollar] is shifting,” said Bipan Rai, CIBC’s executive director of macro strategy.
While a lower loonie may not be imminent, he added, “it’s clear that the market is more sensitive to it, and, as such, investors should be, as well.”
The latest report from the U.S. Commodity Futures Trading Commission illustrates the sudden shift in sentiment where the loonie’s concerned. For the first time since the spring, speculators now hold a net short position in the currency, which is sitting at about 76 cents.
Part of this may have to do with an expected rate hike from the Federal Reserve, and part to what a Trump presidency could mean to Canada, Mr. Rai said in a report.
“Positioning in [Canadian dollar] futures were aggressively pared last week (and are now net short), while risk reversals clearly show an inherent upside bias in the three-month bucket (likely reflecting some of the Trump and Fed premium),” he said.
By “upside bias,” he meant a stronger U.S. dollar against the loonie. And by “three-month bucket,” he was referring to what the market expects three months from now.
The Trump “premium,” meanwhile, implies that the market is beginning to look more closely at what his presidency could mean for the loonie.
“We’ve seen the cost of hedging against a Trump win rise over the past few weeks,” Mr. Rai said.
Many, though not all, observers believe a Trump presidency would be bad for Canada. Certainly many market players see it that way.
“Trump’s brand of protectionism (tearing up NAFTA) adds to an uncertain trade environment,” Mr. Rai said.
“U.S.-Canada trade is the largest in the world, and an important input for generating growth this side of the border going forward,” he added.
“Anything that jeopardizes that creates risks and the [Canadian dollar] should trade defensively if the polls are tight into Nov. 8.”
There’s more at play, of course, notably downbeat comments from the Bank of Canada, but that’s been with us for a while.
As have the ups and downs of oil prices, which also move the loonie. But the shift in sentiment has been swift.
“Investors have become suddenly quite bearish on the [Canadian dollar],” noted Shaun Osborne, Bank of Nova Scotia’s chief foreign exchange strategist, and his colleague Eric Theoret, also a currency strategist.
IMF cuts Canadian outlook
The International Monetary Fund has cut its outlook for Canada’s economy, which has been hit by wildfires in the oil patch, among other things.
Bringing its forecasts more into line with other such outlooks, the IMF now projects economic growth of 1.2 per cent this year and 1.9 per cent in 2017.
In each case, the outlook has been trimmed by 0.2 of a percentage point from its July projections.
Economic growth in Canada, the IMF said in its world economic outlook, will be “held back by the severe impact of wildfires in Alberta on oil output in the second quarter.”
Vancouver home sales tumble
The air is rapidly coming out of Vancouver’s housing market.
Sales in September fell 32.6 per cent from a year earlier, according to the Real Estate Board of Greater Vancouver, and slipped 9.5 per cent from August.
This marked the second month of a new provincial tax on foreign buyers of Vancouver area properties. The numbers also come just a day after a new federal initiative to cool the country’s overheated markets.
Sales of detached homes fell 47.6 per cent from a year earlier, .
And the benchmark home price, at $931,900, declined 0.1 per cent from August, though was still up almost 29 per cent from a year earlier.
India cuts
India’s central bank surprised markets by trimming its benchmark rate25 basis points to 6.5 per cent, citing a more troubled global outlook.
“Global growth has been slowing more than anticipated through 2016 so far, with weak investment and trade damping aggregate demand,” the Reserve Bank of India said in its first statement under its new governor, Urjit Patel.
“Meanwhile, risks in the form of Brexit, banking stress in Europe, rebalancing of debt-fuelled growth in China, rising protectionism and diminishing confidence in monetary policy have slanted the outlook to the downside,” it added.
“World trade volume has contracted sharper than expected in the first half of 2016, and the outlook has worsened with the recent falling off of imports by advanced economies (AEs) from emerging market economies (EMEs).”
There are also domestic issues, such as falling food prices.