Interest rate cut vs. infrastructure spending – Which will best stimulate the Canadian economy?

Is it time for Bank of Canada Gov. Stephen Poloz step aside and make room for Prime Minister Justin Trudeau and his infrastructure spending? Click here to find out why some experts say Bank of Canada Gov. Stephen Poloz’s rate announcement on Wednesday really doesn’t matter and it’s Prime Minister Justin Trudeau’s turn to stimulate the sagging […]

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US dollar reaches its highest level in 13 years

The US dollar reached its highest level in 13 years on Tuesday, benefiting from its safe haven status as investors continue to worry about global economic growth and the increased tensions in the middle east….read more in this Wall Street Journal article.

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Where will the loonie go in 2016-2017 ?

If you are thinking of buying US dollars either for an upcoming trip or to purchase a big ticket item in the US you might want to consider doing it sooner rather than later. The combination of persistent low oil prices and the US Federal Reserve bank inching ever so closer to its first interest […]

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Producer Purchasing Power Parity

The yellow line is the % of over over (under) valuation of the Canadian Dollar based on producer purchasing power parity. This metric indicates that the Canadian Dollar is the most undervalued at any time in the last three years, except for a brief time during the crisis.

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What is the Bank of Canada Likely to Say on Wednesday?

There is widespread anticipation that the Bank of Canada’s statement this week will carry a more dovish tone than the previous statement in December. Some believe that it could even carry an explicit reference to a future rate cut. We do not agree with the consensus. First, as we discuss below, not enough has changed since December to necessarily justify action. Second, both quantitative and anecdotal evidence suggests that the market is already heavily positioned for a more dovish tone and therefore the risks are to the upside for the Loonie coming out of this announcement. That is, unless we get a fairly significant and explicit change in tone, Canadian Dollar shorts are likely to be disappointed.

The key parts of the Bank’s statement from December are shown below in Italics, followed by our commentary.

The global economy is expanding at a modest rate, as the Bank expected. Although growth in several emerging markets has continued to ease, growth in the United States during the third quarter of 2013 was stronger than forecast. Even if some of this pickup was due to temporary factors, the data are consistent with the

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The Analyst View of the Canadian Dollar

Where do the analysts expect the Canadian Dollar to be at the end of the first quarter? The yellow line is consensus forecast at near 1.070. The white line is the current price at 1.095. The options market implied probabilities are the curved bell line. The green bars are the distribution of analyst forecasts.

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Janet Yellen: “I think the predominant risk is that inflation will be too low…”

In light of the “taper debate” culminating in this afternoon’s FOMC statement, as well as signs of disinflation everywhere, we thought this might be a useful time to review Janet Yellen’s views on the topic. Here she is speaking on the topic, in an admittedly different environment, in 2009. Note the focus on the risks of inflation below 2%.

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Is the Canadian Dollar Primed for a Recovery in the Short Term?

Back on September 5th of this year, we examined the relationship between futures market positions on the Canadian Dollar and the value of the loonie. At the time we argued for a short term recovery in the Canadian Dollar based on the divergence of that general correlation. Sure enough, the loonie recovered over the next several days and the correlation was restored. In light of the most recent move down by the Canadian Dollar, we thought it would make sense to reexamine the relationship. As shown below, this particular metric seems to suggest that the loonie is in for a short term recovery.

The white line is the net number of long vs short futures contracts outstanding on the Canadian Dollar. The orange line is the value of the Canadian Dollar.

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Canadian Housing

We found the chart below from Business Insider interesting (and frankly scary). You can read their full story here.

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Three Reasons the Canadian Dollar is Priced Just Right

1 Sentiment — Risk Reversals Risk reversals on the Canadian Dollar are right around their average level for the last 12 months at negative 0.80 (quoted in vol terms). Translation: the options market is pricing the relative value of out of the money puts and calls of the same maturity such that there is no […]

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