• PM Bulletin: Bank of Canada rate decision

    Most spread betters and CFD traders tend to concentrate on a relatively small number of financial instruments. This is eminently sensible on the face of it. After all, when it comes to risking our money we should stick to markets we know. But this can lead to missed opportunities. A case in point is the often-overlooked Canadian dollar, or Loonie. This has fallen to its lowest level against the US dollar in nearly thirteen years. Its decline accelerated (that is the USDCAD rallied) in the summer of 2014. This was when the US Federal Reserve signalled its intention to wind down its programme of monthly bond purchases, effectively tightening monetary policy and indicating the end of quantitative easing. Of course, the Canadian dollar wasn’t the only currency to fall against the greenback, but it has done so with barely a pause. Crude has also fallen dramatically since July 2014, which is a problem for the Loonie given Canada’s reliance on oil. Canada is the world’s sixth-largest oil producer and crude makes up 25% of its exports. In 2015 the Canadian energy sector suffered a slump in revenues of around 22%. This is hurting all parts of the economy such as the property market, construction, finance and other services. It affects the whole country although the real pain is being felt in the key oil-producing area of Alberta. Zero Hedge highlighted an article on Bloomberg Business which reported soaring food prices. Canada imports about 80% of its fruit and vegetables but prices for other basic goods have also shot higher. On Wednesday the Bank of Canada will announce its latest rate decision. The expectation is that they will cut their headline Overnight Rate to 0.25% from 0.50%. This would further undermine the Loonie as it would then be possible to get a better rate of interest on US dollars than Canadian ones. In early 2002 the USDCAD rate topped 1.6000. It is currently hovering around 1.4500. It will need a sustained rally in oil together with a belief that the low is in for the Canadian dollar to reverse course. Disclaimer: Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. As a marketing communication it is not subject to any prohibition on dealing ahead of the dissemination of investment research, although Spread Co operates a conflict of interest policy to prevent the risk of material damage to our clients.