While the markets and most economists expected a 75 basis point hike today, they were 'surprised' when the Bank of Canada only raised by 50 basis points to 3.75%. Among the G7, Canada's central bank has been the most aggressive in raising rates since last March (3.5%) and has so far acted in step with the FED but is this a sign the Fed will make a similar move next week and raise by 50 instead of the expected 75 basis points?
The BoC revised its growth forecasts, predicting a technical recession in coming months and a 50% drop in GDP growth to 0.9%, possibly stalling and / or contracting. They also expect inflation to drop below 3% as borrowing costs deter people / business from spending. Yet, there are no signs of easing pressures on consumers, raising the prospect that inflation becomes 'entrenched' as near term expectations remain elevated.
The less than expected rate increase from the BoC is sparking speculation of what the FED might do next week. While it is widely expected that another rate hike is coming in the U.S., could the BoC's move signal a 'slowdown' in the rate increase, albeit an increase nonetheless. Or... is this a sign the BoC has stepped out of line with the FED as it continues charging forward with a .75% rate increase next Wednesday?
One thing for certain, all those 'HELOCS', or Home Equity Line of Credit loans and variable rate credit cards just saw their rates edge up another half point, putting enormous strain on family households and businesses. If the BoC expects contracting GDP growth, this spells trouble for the employment sector. From this I can expect a less optimistic Christmas season which could turn into a retail 'winter' as people spend less?
It wasn't just Canada's central bank that made a surprise move. The Reserve Bank of Australia, on October 4 raised by 25 basis points after a streak of half point hikes, to 2.6%. It's obvious that raising rates, even by just a few points, considering the amount of indebtedness the world is awash in, is all that is needed to 'break the system'.
While the Canadian dollar initially reacted by dropping about 4 tenths of a penny, it has quickly recovered to remain range bound at about .7375 against the USD. Might have something do do with gold gaining a bit. Canada happens to be the 5th largest gold producing country in the world with gold being Canada's most valuable mined commodity at $12.3 Billion in 2020.
Canada is also the 6th largest producer of natural gas and we all know where the price of that is headed this winter. Canada is the fourth largest producer of oil. This summer, we saw record high regular unleaded gasoline prices, spiking to over $2 a liter. No doubt, these commodities are buoying the Canadian dollar.
As I mentioned in a previous article, is the Canadian dollar being viewed as a safe haven asset? I won't be too surprised if a flurry of wealth 'escaping' from Europe or Asia buys up Canadian dollars, driving its value up instead of down. Is parity with the USD in the cards again, as we saw back in 2010? Just speculating but you never know, eh?
While I'm at it, here's silver. The powers that be are doing their dangest to keep silver below $20 spot. I can't thank them enough for keeping it so cheap for us so we can buy more for less!
Bitcoin is back above $20 Gs and presently sits at $20,799.37 at time or writing.
Check out some of my previous posts.
Japanese Yen craters to 32 year low against USD.
Are we weeks away from a market crash?
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Getting ready for the coming cold, cold winter.
Getting ready for the coming food shortage.
