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 mixed so far
- New York poised for stronger open
No respect
The Canadian dollar may be perkier, but David Rosenberg, for one, is annoyed that the resurrection of the Mexican peso is so much stronger.
"It seems particularly galling that the Mexican peso has managed to hit its highest level in more than a year against the U.S. dollar, with hedge funds and other money managers holding the largest bullish position on this currency since 2013," said the chief economist at Gluskin Sheff + Associates.
As the late comedian Rodney Dangerfield might put it, the loonie's getting no respect despite Canada's strong economic showing of late and certain concerns easing fast.
"It seems to be lost on many investors that Canada has emerged as one of the stronger economic performers in the industrialized world so far in 2017," Mr. Rosenberg said.
"For all the talk of how incomes are sluggish and debt levels onerous, ex-auto retail sales still managed to strengthen 1.5 per cent in April and the broad trend is running far above comparable U.S. levels," he added in a recent report.
"Part of this may well reflect superior population growth north of the border, primarily due to Canada's less stringent immigration policy - a policy built on control and on points that are linked to economic growth."
Mr. Rosenberg's comments came before Wednesday's rally in the loonie, but the currency's gains are still a far cry from those of the peso.
Remember back during the U.S. election, when the peso was seen as the barometer for Donald Trump's chances of becoming president, moving on his repeated attacks on Mexico?
The loonie, too, was affected somewhat by Mr. Trump's trade policies and his administration's recent duties on Canadian softwood.
The loonie had also suffered amid concerns over Canadian housing.
But Ontario recently moved to cool the housing markets in and around Toronto, while alternative mortgage lender Home Capital Group Inc. has now been rescued by Warren Buffett.
Economists such as Mr. Rosenberg note that these fears are now easing. So if you want to read into those comments, what's the peso got that the loonie doesn't?
The Canadian dollar has picked up since mid-June, when the Bank of Canada signalled that it was moving to raise its benchmark rate, now at 0.5 per cent, sooner than expected.
Governor Stephen Poloz backed this up at a conference in Portugal Wednesday, sending the loonie above 76.5 cents (U.S.). Deputy governor Lynn Patterson then added weight to his comments.
The currency is holding those gains, going for as high as 76.9 cents so far today.
Also playing into all this is the fact that some observers believe the rally in the U.S. dollar is effectively over.
"The U.S. dollar is losing blood against the majors and a majority of emerging market currencies on the back of dovish comments from the Federal Reserve (Fed) Chair Janet Yellen earlier this week," London Capital Group senior market analyst Ipek Ozkardeskaya said of the greenback's latest moves.
"The USD depreciation is enhanced by somewhat hawkish suggestions from the Bank of England (BoE) Governor Mark Carney, the Bank of Canada (BoC) Governor Poloz and a truly misinterpreted European Central Bank (ECB) President Mario Draghi."
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
The financial sector as a whole is putting in a sterling performance
Chris Beauchamp
Markets mixed
Global markets are mixed so far, with New York poised for a stronger open.
Tokyo's Nikkei and the Shanghai composite each gained 0.5 per cent, while Hong Kong's Hang Seng climbed 1.1 per cent.
In Europe, London's FTSE 100 was up 0.3 per cent by about 7 a.m. ET., as Germany's DAX and the Paris CAC 40 were down by between 0.3 and 0.7 per cent.
New York futures were also up.
Playing into the market today are the results of Federal Reserve stress tests, which allowed major banks to move ahead with shareholder plans.
"The financial sector as a whole is putting in a sterling performance this morning, as U.S. banks get moving on buybacks," said IG chief market analyst Chris Beauchamp in London.
"The prospect of higher payouts from financial stocks could well provide yet another tailwind for the broader market rally, just as it began to look stagnant," he added.
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