North American stocks up, loonie down following Bank of Canada rate hike

18 January, 2018, 14:24 | Author: Sheri Evans
  • USD/CAD Daily Fundamental Forecast – January 17, 2018

On the other hand, the bank predicted that Canada will see a small benefit from the recent USA tax changes thanks to increased demand.

So where do rates go from here?

How many years is your mortgage amortized for?

CDOR is a rate at which banks will lend to corporate clients using bankers' acceptances, a short-term credit instrument. Another hike, let alone two or three, is hardly baked in the cake.

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Economists widely believe that based on the economic environment, it's likely that governor Stephen Poloz will raise the central bank's benchmark interest rate Wednesday for a third time since last summer. Recent data show that labour market slack is being absorbed more quickly than anticipated.

The central bank estimates the economy grew 3% previous year, and is expected to expand 2.2% in 2018. "But in this case the rate hike itself was already reflected in market prices.so the real question on investors' minds was would the Bank of Canada provide more hawkish guidance about future rate hikes?" said Todd Mattina, a chief economist at Mackenzie Investments.

Underlying economic fundamentals at home and overseas have strengthened, and would otherwise suggest a strong pickup in business investment and exports, the bank said. We're looking for one further hike this year, likely early in Q3, and a further 50 bps in 2019. On the flip side savers can expect to earn more, too. It predicted Canada's high levels of household debt would amplify the effects of higher interest rates on consumption.

"They were really quick to highlight a lot of the positive and constructive developments that made them optimistic about the forecast and the outlook for the economy", Theoret said.

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The central bank's rate in turn affects rates that Canadians get from their retail banks for things like mortgages, credit lines, savings accounts and Guaranteed Investment Certificates (GIC). Barring another run of roaring data, we look for the Bank to hold off until possibly July before hiking again (depending, of course, on the fate of the NAFTA talks).

The bank also introduced into its projection the potential negative effects of recent US tax reforms, estimating they will take another 0.5 percent off Canadian investment by the end of next year.

"Although their investment intentions indicate plans to boost spending, respondents to the Business Outlook Survey are increasingly concerned about the ongoing NAFTA negotiations and rising protectionism more generally", the central bank said, referring to its quarterly survey.

The Bank of Canada said the unknowns of the NAFTA's renegotiation are continuing to weigh on its forecast and have created a drag on investment and exports.

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Exports have been weaker than anticipated, but are still expected to contribute a larger share of Canada's growth, the bank said.

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