Bank of Canada expects higher rates over time

Bank of Canada expects higher rates over time

2019-11-11 • Updated

The Bank of Canada left monetary unchanged at its meeting in December 2017. At the same time, the regulator allows the possibility of rate hikes at the beginning of 2018.

Bank of Canada Governor Stephen Poloz gave some hawkish comments in his recent speech. According to him, growth is seen to continue above potential, posing an upside risk to the inflation forecast. He also described the current monetary policy as “quite stimulative”. Such comments inspired expectations that further monetary policy tightening in Canada will come relatively soon. The probability of a rate hike in January is now estimated by 35%.

According to the Organization for Economic Cooperation and Development (OECD), Canada’s growth rate will lead the G7 industrialized democracies this year at 3% before sliding to 2.1% in 2018. The nation’s economy was boosted by a heated housing market and increasing indebtedness of households. It seems to have some strong foundations: strong domestic demand, improving business activity and high employment.

Canadian inflation stays below the target level. Yet, the Bank of Canada seems to think that this may be explained by the impact of temporary factors, such as persistent excess capacity in the economy. As energy prices turn up, inflation will start doing so as well.   

However, future economic dynamics is not without risks. Household debt reached 171.1% of income in the third quarter. The main one is the potential end of the North American Free Trade Agreement (NAFTA). The US has threatened to pull out of it unless Canada and Mexico agree to major concessions. If it happens, the Canadian dollar would greatly suffer, as 75% of Canadian export goes to the United States. In addition, tighter mortgage rules will start acting in January and it’s yet to be seen how the economy reacts to the two rate hikes of 2017.

“Given the unusual factors at play, the bank is monitoring these risks in real time – the term we use for this is data dependent – rather than taking a mechanical approach to policy setting,” Poloz said.

It was a volatile year for USD/CAD. The pair initially strengthened to almost 1.3800 in April, but then fell to 1.2060 in September. In the final months of 2017, the Canadian dollar has once again been weakening, so USD/CAD managed to rise to 1.2800.

 

Similar

Oil Market Outlook
Oil Market Outlook

Oil prices rebounded slightly on Friday but are still expected to show losses for the week due to concerns about slowing growth in the US and China. US crude futures rose 2.7% to $70.41 per barrel, while the Brent contract increased by 2.5% to $74.33 per barrel.

What will move the market on September 6-10?
What will move the market on September 6-10?

Last Friday’s NFP was disappointing. The reaction of the markets was astonishing. Will it last longer? Let's find out the main trade opportunities for the upcoming week.

Latest news

US100: Has the correction ended?
US100: Has the correction ended?

Bullish Scenario: Buys above 17910 with TP:18098.07, TP2:18277, and TP3: 18415 Bearish Scenario: Sells below 17850 with TP1:17730, TP2: 17700

Stocks To Watch For March
Stocks To Watch For March

During his program on CNBC on February 28, Jim Cramer expressed frustration with the impact of earnings reports on market behavior, noting how they often prompt rash decisions by average investors. He criticized the short-term focus and lack of attention to nuance in news coverage of earnings. Cramer cited examples of Home Depot and Lowe's, highlighting how investors reacted hastily to headline news without considering the broader context provided in earnings calls.

Nasdaq, S&P 500 Reach Record Highs
Nasdaq, S&P 500 Reach Record Highs

After creating record highs, Wall Street's main indexes opened on Wednesday and began to edge lower, reflecting cautious sentiment among investors. They're eagerly awaiting crucial inflation data that could impact the U.S. Federal Reserve's interest rate decisions. The upcoming release of the personal consumption expenditures (PCE) price index is expected...

Deposit with your local payment systems

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera