Canadian Dollar, and interest rates globally – Where is this going ?

January 23, 2015

 

Weekly Statistics:

Today Week Ago Year Ago
16-Jan-15 09-Jan-15 24-Jan-14
S&P TSX 14,779.35 14,309.41 13,717.76
S&P 500 2,051.82 2,019.00 1,790.19
DJIA 17,672.60 17,512.37 15,879.11
OIL $45.33 $48.33 $88.02
USD vs CAD 0.8049 0.8341 0.9038
Gold 1,294 1,280.10 1,266.20

 

 

In a surprising move, the Bank of Canada has cut its interest rates by 0.25%. The overnight loan rates had been at 1% since September 2010 and after this cut, they are at 0.75%. The news came as a surprise to Bay Street and Sal Guateri, Senior Economist at BMO capital markets, termed it as an “aggressive move”.  This rate cut could help fuel the growth in Canadian economy as it will reduce the rates at which consumers borrow money for their houses, cars etc, even though the big banks have decided not to cut their prime rate from 3%.  TD bank said that Bank of Canada’s overnight rate is one of  the “many” factors it takes into consideration while deciding their prime rate and the rate cut won’t affect it. Royal Bank and Bank of Nova Scotia also said that they won’t cut their mortgage rates at this moment.  The rate cut is seen as a response to the recent plunge in oil prices, which, according to bank of Canada is a negative catalyst for Canadian economy. The oil and gas investment will probably drop by 30% this year and could be same in 2016 as well. This will slow Canadian exports down to 1% from 6% in 2014. The interest rate move also saw the loonie dropping 2 cents against the USD to around 80 cents.

 

The European Central Bank (ECB) is following the footsteps of US fed, Bank of England and Bank of Japan, and announced a Trillion euro asset purchase plan to fight deflation in the euro area. The ECB will spend around 60 Billion euros and this amount will probably comprise of 45 Billion euros of sovereign debt, 5 billion euros of bonds issued by institutions and agencies, and 10 Billion euros under existing programs for asset backed securities and covered bonds. This is an open ended program and will last at least until 2016. The main motive of this program is to boost the region’s poor inflation rate, which came in at an annual minus 0.2 percent in December. The move came as good news for markets around the world, with both North American and European markets rallying yesterday.

 

 

Source- Bloomberg, Zerohedge, Globe Investor Gold, CBC, Financial Post

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