Briefing highlights
- Loonie spikes past 78 cents
- Bank of Canada raises key rate
- Central bank paints brighter picture
- Home Capital names new CEO
- Markets at a glance
- Canadian home prices rise in June
Loonie shoots up
The Canadian dollar is shooting higher, eyeing the 78-cent mark in the wake of the Bank of Canada's rate hike and brighter outlook.
The loonie has traded as low as 77.28 cents (U.S.) today, and as high as 78.52 cents.
The currency rose after the central bank raised its benchmark overnight rate by one-quarter of a percentage point, to 0.75 per cent, its first hike in about seven years, and pointed to better times in both its statement and accompanying monetary policy report.
"The loonie is strengthening in the aftermath, which is natural given the upbeat statement and forecasts in the MPR," said Bipan Rai, executive director of macro strategy at CIBC World Markets.
"The comments around inflation and the output gap suggest that another rate hike is likely later this year, but that was mostly in the price."
Governor Stephen Poloz and his colleagues also cited a "robust" economy that has been pumped up by consumer spending, The Globe and Mail's Barrie McKenna reports.
"As a result, a significant amount of economic slack has been absorbed," the central bank said.
"The very strong growth of the first quarter is expected to moderate over the balance of the year, but remain above potential," it added.
"Growth is broadening across industries and regions and therefore becoming more sustainable."
The central bank now projects the economy will expand by 2.8 per cent this year, 2 per cent next year, and 1.6 per cent in 2019.
It also moved up its timing for the closing of the output gap to around the end of this year.
"The BoC delivered the expected rate hike, leading to a knee-jerk drop in [the U.S. versus Canadian dollar," said Mark McCormick, North American chief of foreign exchange strategy at TD Securities..
"The overall favours a more data-dependent outlook but the details lean against back-to-back hikes," he added, suggesting the central bank won't move again at the next meeting.
The U.S. versus the Canadian dollar is about 1.5 per cent "below the level implied by rates and oil, so we need more good news to keep the party going," Mr. McCormick said.
The loonie has rallied since mid-June, when Bank of Canada officials began to signal that the two rate hikes of the oil shock had effectively done their job.
"In contrast to pre-decision remarks, the hike was not positioned as taking back the first of two 25-basis-point cuts in 2015," said CIBC chief economist Avery Shenfeld.
"The market seemed to interpret that as implying that the bank is planning on more than one further hike this year, sending the Canadian dollar stronger and bond yields higher as a result," he added.
"But it also leaves room for the BoC not to be mechanical in timing the second hike for September. It could opt to wait to hike until October to allow some time for inflation to show through, to signal that it's not hiking at every decision date, and to avoid too strong a [Canadian dollar] move if the [Federal Reserve] stands pat in September."
The Canada 10-year bond at midday was yielding 1.883 per cent, up from a low prior to the rate hike of 1.818 per cent. That contrasted with falling yields today in the U.S., as the benchmark 10-year treasury bond fell to 2.317 per cent at midday from a high of 2.346 per cent earlier.
The strength in the loonie on the back of the Bank of Canada's interest rate hike, combined with recent weakness in crude prices, shows that bond yield differentials – specifically the spread between Canadian and U.S. two year government bonds - are clearly in the drivers' seat where the value of the Canadian dollar is concerned.
Read more
- Barrie McKenna: Bank of Canada raises interest rates for first time in 7 years
- Rob Carrick, Jeremy Angus, Matt Lundy: How the rate hike affects homeowners and buyers
- Rob Carrick: Five harsh realities of rising rates for savers and borrowers
- Rising rates: An investor’s guide to a new era
- Fed’s Yellen says economy steady enough for more hikes, bond wind down
- ’Rate tantrum’: Poloz has some explaining to do
- David Berman: Banks that will profit most from a rate hike
- Ian McGugan: Potential rate hike at odds with inflation
- Rachelle Younglai: Strong Canadian job growth sets stage for rate hike
Home Capital names new CEO
Troubled mortgage lender Home Capital Group Inc. has chosen Yousry Bissada, a 57-year-old executive with experience in the mortgage industry, as its chief executive officer, The Globe and Mail's James Bradshaw reports.
Hiring a new chief executive was a crucial step in the company's turnaround plan.
After a crisis of confidence sparked a run on Home Capital's deposits earlier this year, pushing Home Capital to the brink, a refreshed board of directors secured support from Warren Buffett, whose firm Berkshire Hathaway Inc. is now the largest shareholder.
Read more