What a disaster!

 

• The Canadian economy is declining, the US economy is growing.
• The Bank of Canada is cutting interest rates aggressively, the US Federal Reserve just indicated that they will likely keep rates the same for the next few months.
• The incoming US president is threatening 25% tariffs on Canadian exports.
• Canada's deficit came in at 50% larger than expected at $62 billion.
• Foreign investment into Canada has fallen off a cliff.
• The Government of Canada is in turmoil.

 

Any way you look at it, the "Loonie" is fighting an uphill battle. Canada has to either become more friendly to business investment or become more productive. Hopefully we make some changes soon!

 

The good news is that markets are supposed to price in expected future events. Maybe all of the above negatives are already priced into the Loonie, and future rate cuts could end up driving some economic growth in Canada (as you can see from the chart below). Hopefully, these rate cuts and a friendlier business environment are enough to stem the Loonie’s downward slide.

 

I have also included a note from our CIBC Economics team entitled “The case for longing the long end”

 

As always, if you have any questions, please feel free to give us a call.

 

Have a great weekend.

 

Milan