News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View more
Real Time News
  • While JPY gets clobbered, CHF decides to turn a blind eye to yields $CHF https://t.co/MViWZiiPZ7
  • The surprise 100 basis point cut from the Turkish central bank (to 18%) generated the expected pressure for $USDTRY. That said, I don't think it was the market that decided the momentum should die out at 8.8000 again... https://t.co/4jmOPnzzK9
  • surprised that $NQ is holding up so well with what rates are doing. 10 year yield at a 2 month high, $Nasdaq still holding resistance at prior support https://t.co/UBWBxY2nFC
  • The S&P 500 has recovered all the ground it lost at the start of the week and the Dollar has slumped post FOMC and PMIs. DailyFX's @JohnKicklighter gives a brief overview of the market for Thursday! https://t.co/jihKB44ELn
  • https://t.co/lbNvVbQq4n
  • The future taper isn't enough to urge the Dollar to a critical bullish break. In turn, $EURUSD has reversed shy of of August's trough and keeps in play an inverse head-and-shoulders pattern with a neckline at 1.19 https://t.co/EgUtX6Pmvy
  • USD/CAD testing short-term moving average support. Traders have cut their long exposure over the week. Get your market update from @nickcawley1 here:https://t.co/iEL5cbFnHs https://t.co/6kLkUFkFvU
  • In the West, that qualifies as a default action. Let's see how it is treated in the world's second largest economy https://t.co/PKWy7SE8Dt
  • Some Evergrande offshore bondholders do not expect company to make interest payment by Thursday deadline
  • The flash September US PMIs slowed more sharply than expected. That was a general trend across the developed world with most economies continuing to slow from their post-Pandemic peak recovery paces https://t.co/TgkUDlOyAe
Canadian Rate Cut: a Double-Edged Sword?

Canadian Rate Cut: a Double-Edged Sword?

Walker England, Kara Dailey,

Talking Points:

  • BOC lowers their interest rate (0.75%) and growth outlook (1.5%)
  • Benefits energy and non-energy exporters, yet increases financial system risks
  • USDCAD hits a 5 year high

On Wednesday the BoC created short term volatility, shocking the markets with a 0.25 bps cut in the overnight rate. The move lower to 0.75% is the first move away from the 1.0% mark held since April of 2009. According to statements made by Central Bank Governor, Stephen Poloz, the deviation was made in response to the uncertainty surrounding oil prices. While the move warrants upside potential, it does not come without financial risk, possibly even harboring an element of contagion.

As a net exporter of oil, Canada becomes the first of the G7 countries to lower their cost of financing as a result of global commodity pricing. The bank sees the rate cut as aiding both energy and non-energy exporters alike. The first group will find relief in their US Dollar denominated products, while the latter should see a rise in demand for their relatively cheaper goods/services. The benefits however do not end with the manufacturing and mining sectors. Within the financial sector banks can both borrow and lend at cheaper rates—an exchange that proves to be a double-edged sword.

While benefiting banking institutions, the lower rates simultaneously leave the financial system vulnerable to overextensions made by consumers. Lower interest may expand the debt to income ratio which currently resides near record highs at 165%. A shift in debt financed purchases can already be seen; car sales reached a record level (1.85 million units) in 2014 and are expected to be sustained in 2015. Furthermore, any additional debt borrowing for homes may add insult to injury in a housing market already thought to be overvalued; the estimates range from 10% (Canada Mortgage and Housing Corporation) to 30% (The Economist).

In addition to lowering their interest rate, the BoC dropped their growth forecast for the first half of 2015 to 1.5% from 2.4%—a common theme globally. Now the question remains, will the reversal from a rate hike bias to a rate cut spread? Possible subjects include the BoE (whose 2 hawks dropped the campaign for rate hikes this month) and the RBA. The later institution will have to decide on February 4th whether their fundamental position, regarding commodity exports and inflation, is similar enough to Canada to facilitate a rate cut.

USD/CAD 1 Month Chart

dailyfx US Dollar Canadian Dollar January 2015

Chart Created by Walker England Using MarketScope2.0

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES