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Bank of Canada cuts interest rate


Stone19
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Guest 50centdollars

With the drop in oil prices incomes are going to drop and with household debt at insane levels they are trying to give Canadians more breathing rooms. I don't think this cut matters as Kclarkin says. As Ed Clark already said, consumer is tapped out. I think they are trying to stop a hard landing.

 

Did anyone listen to the press conference. About 5 different reports asked Poloz the exact same question, why are you cutting rates now? You must see something pretty grim about the economy? I feel like he just tried to beat around the bush saying that its just a hiccup and a slow period in getting the economy back to lower unemployment.

 

I think this personally is BS. Who cuts rates for a hiccup in the economy?

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Curious where the USD-CAD ratio will be when the US raises interest rates (no idea when, but it'll be before Canada almost for sure).

 

It wouldn't surprise me to see the CAD touch $0.70 US. I base my general expectations of where the CAD "should" be on the Economist's "Big Mac index" :-) tempered with the observation that the CAD/USD exchange rate has had exaggerated swings in both directions (e.g. from $0.62 in 2002 to $1.10 in 2007). Furthermore, I believe the rise from $0.62 was on the back of oil. With oil tanking and no idea where it will be in a year, the CAD is going to suffer. The potential for an increase in US interest rates while the Canadian rate remains at a record low is just icing on the cake.

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Just what we needed, now we can get even more in debt.

 

Will a 0.25% drop in rates have any impact on borrowing or the economy in a ZIRP world? The only benefit I can see is to devalue the currency even further.

 

It will increase debt relative to what would happen if you didn't drop the rate, otherwise what is the point?  I have seen it first hand where people's expenditure on a house is based entirely on the amount of money the bank approves them for.  If their interest rate drops by 0.25% then that just ups the amount they will spend on a property.

 

I would have less of an issue with it if they had hiked rates at some points in the last 7 years.  They slashed rates during the last recession, didn't do anything when the economy recovered and now they are trying to slash again.  It really doesn't feel sustainable.

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Canada's economy rode the commodity wave the past 10 years. Manufacturing sector shrank and resource sector grew. Western Provinces lead the country in growth. These industry changes happened slowly and over many years.

 

The key for the Canadian economy moving forward will be what happens to commodities. If prices bounce back up then all is OK. If commodity prices stay low or go lower then the Canadian economy is only going to get worse. The bank of Canada is telegraphing what they think is likely going to happen.

 

Crazy to see the CAN$ go from parity to the US$ to below $0.82 in less than 2 years; and should the U.S. economy strengthen and Can economy weaken further in the near term (likely) the CAN$ will likely drift lower still. Being Canadian, glad I decided to visit Hawaii with my family when we were at parity! I also am not a currency trader; however, leaving 80% of my assets in US$ the past 2 years has resulted in currency driving some pretty significant portfolio gains. Strange times.

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This move was done to drive down the currency on purpose.  I cant really see any other reason. 

 

The lower currency will insulate the Canadian patch versus the US shale patch.  In one fell swoop the Bank of Canada accomplished a great deal to TEMPORarily boost the Cdn. Economy. 

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Crazy to see the CAN$ go from parity to the US$ to below $0.82 in less than 2 years; and should the U.S. economy strengthen and Can economy weaken further in the near term (likely) the CAN$ will likely drift lower still.

 

$0.80 - $0.82 is close to the long-term average. One can argue that move *to* parity was a crazy aberration, and that we are just now returning back to the normal rate.

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Eli, I agree $0.80 looks to be a more sustainable level. Unfortunately, the dollar was at or above parity for long enough for many manufacturing companies to decide to leave Canada. With the currency dropping back down those jobs will not be coming back any time soon. And 24 months from now things will likely look totally different again. The question now is how low will the CAN$ go? I will not be in a hurry to sell my US$. I do love the volatility as it creates many great buying opportunities as markets often overreact in the short term.

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