Briefing highlights
- Bank of Canada holds key rate steady
- Canadian dollar slides on statement
- Markets at a glance
- Laurentian finds mortgage ‘misrepresentations’
- Hudson’s Bay posts wider-than-forecast loss
- Bitcoin tops $12,000
Loonie slips
The Bank of Canada took some steam out of the loonie today as it held its key rate steady and, more importantly, continued to flag uncertainty.
The Canadian dollar slipped to below 78.5 cents (U.S.), having slightly topped the 79-cent mark earlier in the day.
As The Globe and Mail's Barrie McKenna reports, the central bank did what was expected by holding its overnight rate steady at 1 per cent.
What markets had been looking for were signals, and Governor Stephen Poloz and his colleagues gave them that, by signalling uncertainty.
"The global outlook remains subject to considerable uncertainty, notably about geopolitical developments and trade policies," the central bank said, though noted that the jobs market has been strong, wages have improved, and business investment continues to play its part.
"The tone is a bit more dovish than expected, with the bank still sounding cautious on the output gap and reduction of slack," said Mark McCormick of TD Securities, noting the drop in the loonie as "Poloz continues to get cold feet."
"Notably, CAD is likely taking a hit on the line indicating that labour market slack is ongoing despite job growth," Mr. McCormick added, referring to the Canadian dollar by its symbol.
"The bank also noted that inflation had been bosted by temporary factors. That said, most of the evidence suggests otherwise, with wage growth and domestic prices starting to improve, though it has not been enough to get the bank to proceed with normalization."
The central bank has hiked twice this year, and then settled into wait-and-see mode. So markets have been speculating on how long the Bank of Canada will wait, depending on what it sees.
"All in all, the tone is way less upbeat than expected, and pours some more cold water on the notion of a near-term rate hike," Mr. McCormick said.
The drop in the loonie "is slightly defensive, but that's likely driven by short-term tactical positions as opposed to a market that's interpreting the statement as dovish," said Bipan Rai, executive director of macro strategy at CIBC World Markets.
"We still expect the loonie to consolidate in the near-term versus the [U.S. dollar] and to weaken versus other major currencies, including the [yen]."
The central bank is also watching to see its previous rate hikes are affecting consumers, with an eye to developments at the NAFTA bargaining table.
So a policy statement that's "balanced with a hint of caution" is "appropriate for now given that the bank is waiting to see how the broad economy responds to prior rate hikes before it elects to raise rates again," Mr. Rai said.
Read more
- Barrie McKenna: Bank of Canada stays cautious, keeps rates on hold
- Canadian dollar could plunge to 72.5¢ on NAFTA ‘crash-out’
- Get your loons in a row: ‘Investors should protect themselves against NAFTA termination risk’
- ’Buckle up’: It would take $100 oil to stop the Canadian dollar from skidding to 75¢
- Threat of Canadian financial crisis eases (but don’t take that to the bank)
Markets at a glance
Read more
More news
- Laurentian Bank audit finds ‘client misrepresentations’ on some mortgages
- Hudson’s Bay posts wider-than-forecast loss as sales fall
- Bitcoin surges above $12,000 to record on relentless demand