Bank of Canada rate decision will likely determine where the Canadian dollar goes from here, report says

Skip to Content News Archives Economy Defence Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Defence Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Defence Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeBankingEconomyBank of Canada rate decision will likely determine where the Canadian dollar goes from here, report saysMarkets currently place the chances of an interest rate increase at the Bank of Canada's Dec. 9 meeting at 100 per centMuch of the benefit from the narrowing yield gap between the Canadian and U.S. currencies is already baked into the loonie's recent rise, said economist Kyle Dahms. Photo by Peter J. Thompson/PostmediaThe Canadian dollar has risen nearly two per cent this month, mostly on increasing bets for a Bank of Canada rate hike, but where it goes next depends more on the central bank’s hints of future calls rather than its next decision on Wednesday, says National Bank of Canada.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe loonie was up 1.8 per cent to 71.3 cents United States in mid-morning trading on Tuesday after falling to a year low of 70 cents U.S. in mid-October.This advertisement has not loaded yet, but your article continues below.“Expectations of a Bank of Canada hike this Wednesday, alongside a (United States) Federal Reserve hold, have accompanied a narrowing of Canada’s yield disadvantage and a partial reversal of the loonie’s earlier losses,” Kyle Dahms, a senior economist at National Bank of Canada, said in a note on Monday.SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of FP West: Energy Insider will soon be in your inbox.We encountered an issue signing you up. Please try againMarkets currently place the chances of a Bank of Canada hike at 80 per cent, based on overnight swap data from Bloomberg.Many economists are also calling for policymakers to hike rates on Wednesday by 25 basis points to 2.5 per cent, reversing earlier forecasts for a hold at the October meeting.The Fed is expected to hold when it announces its latest rate decision on Wednesday, with its benchmark lending rate standing at 3.75 per cent to four per cent following a hike in September.However, much of the benefit from the narrowing yield gap between the Canadian and U.S. currencies is already baked into the loonie’s recent rise, Dahms said.“With a Canadian hike already substantially anticipated, further support may depend more on guidance about subsequent moves than on the decision itself,” he said.This advertisement has not loaded yet, but your article continues below.Markets currently place the chances of an interest rate increase at the Bank of Canada’s Dec. 9 meeting at 100 per cent.“The (Canadian dollar’s) recovery nevertheless remains vulnerable to changes in the rates and commodity backdrop,” Dahms said.He said it’s possible the Fed could turn more hawkish, thereby increasing the rate differential between Canada and the U.S., and slower-than-expected global growth and falling oil prices could also pull the loonie down.Dahms said the relationship between the Canadian dollar and high oil prices has been modest as the Middle East crisis has escalated, but even though that relationship turned more positive more recently, there appear to be too many headwinds to set a flight path for the loonie.“We therefore remain cautious on the Canadian dollar through year-end,” he said. “More durable appreciation, in our view, will require an easing of trade tensions and a sustained narrowing of Canada’s yield disadvantage.”We apologize, but this video has failed to load.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. 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