"(Source: "'Currency instability' now a serious concern for Canada", Financial Post, January 18, 2016.) Currency strategist Adam Cole of Royal Bank of Canada sees the loonie bottoming out around US$0.65. But that does not seem to be happening yet. Over the past two years, the Canadian dollar has fallen 33% against the greenback, the biggest decline since the currency was unpegged from the US dollar in 1970.
This year, Poloz must once again consider falling oil prices, a weakening dollar and inflation at the lower end of the bank's one- to two-per-cent target range.
With oil pooling at the bottom of even 12-year charts and helping equities, commodity dollars and risky assets as a whole slide yet lower, many investors and analysts expected the Bank of Canada to cut its key 0.50% interest rate by 0.25%.
The difficulty with those sorts of results is that all else is equal.
Perhaps the best reason to leave interest rates unchanged is uncertainty over what would happen to the value of the Canadian dollar.
The difficulty is that all else is not equal, particularly global growth which has slowed. And also of late, a sluggish USA manufacturing sector which is relevant because Canada is a supplier too to that part of the US economy.
"These reports could have real implications for consumption, even of domestic goods, if Canadians judge every drop in the loonie as a sign of impending economic doom". Furthermore, the lifting of various sanctions on Iran by the European Union and the U.S.A has helped flood the market with cheaper oil, which evidently helped further drive down the Loonie.
Thus, BofA think the BoC will have to cut 2016 annual GDP growth by 0.5ppt to around 1.5%.
Firmer-than-expected economic data reported by Statistics Canada was overshadowed by the spike in risk aversion. It also expects global growth to "trend upwards" starting this year. Many analysts expect the Bank of Canada to slash interest rates next week in a desperate bid to stimulate the country's economy.
He said CIBC and National Bank would "face the greatest headwinds" if the central bank opts to cut the overnight rate below 0.5 per cent in future sessions.
January 18 saw the Canadian dollar continue to plummet as it almost reached the 68-cent mark (68.22 to be specific) before stabilizing at 69-cents; which is indicative of another day of sub-par economic growth in Canada's failing economic landscape.
Some economists have called for the government to expand its spending plans and bring them forward more quickly, saying stimulus spending may have a greater impact on the economy than further rate cuts. The household debt-to-income ratio hit another record of 163.7 percent in the third quarter, just when the economy crawled out of its slump.
The Canadian dollar is at its lowest level against the USA dollar since 2003 and for Canadian importers this is a problem. BoC Governor Stephen Poloz will offer a press conference at 11:15 am EST.
