Economy

Bank of Canada Hawks unlikely to fly too far ahead of Fed

Published

3 years ago

May 2, 2021

By Fergal Smith

TORONTO (Reuters) – The Bank of Canada‘s signal that it may begin hiking interest rates before the Federal Reserve has lit a fire under the Canadian dollar, but past tightening cycles show faster liftoff may not be sustained, particularly if the loonie overshoots.

In a move that surprised some investors last week, Canada‘s central bank sharply upgraded its forecasts for economic growth and changed its guidance to show it could start raising its benchmark interest rate from a record low of 0.25% in late 2022.

It also tapered its bond purchases, becoming the first major central bank to cut back on pandemic-era money-printing stimulus programs. The U.S. central bank’s current guidance is to leave interest rates on hold until at least 2024.

Interest rate differentials are a major driver of currency markets. Too strong a currency could reduce the competitiveness of Canada‘s exports, slowing economic growth. Canada sends about 75% of its exports to the United States.

The BoC has begun hiking borrowing costs ahead of the Fed twice since the start of the millennium – in 2002, following the 2001 recession in the United States, and in 2010, after the global financial crisis. In both cases it reversed all of the tightening before a new rate-hike cycle began.

“The idea that the Bank of Canada can go it alone ahead of the Fed without a large number of negative consequences for the Canadian economy is fundamentally flawed,” said Karl Schamotta, chief market strategist at Cambridge Global Payments.

“If the bank maintains its current trajectory and keeps communications as they are, then we see currency appreciation, which hurts the exports sector.”

RED-HOT HOUSING MARKET

Schamotta estimates the loonie’s fair value is 1.2650 per U.S. dollar, or 79.05 U.S. cents. It was trading at 1.2280 on Friday and is up 3.7% since the start of the year.

That is the second biggest gain among Group of 10 currencies, after the Norwegian crown. Norway’s central bank has signaled it could raise interest rates in the second half of this year.

The gap between Canada‘s 2-year bond yield and that of its U.S. equivalent has widened by 14 basis points since January to 16 basis points in favor of the Canadian bond, while money markets expect two BoC rate hikes in 2022, as opposed to one from the Fed, reflecting the Canadian central bank’s more hawkish stance.

“It doesn’t really make sense for the Bank (of Canada) to hike ahead of the Fed,” said Bipan Rai, North America head of FX strategy at CIBC Capital Markets. “I think when push comes to shove … they’ll be a lot more patient than I think the market is giving them credit for.”

Soaring commodity prices, a red-hot housing market and an acceleration in the pace of COVID-19 vaccinations have bolstered Canada‘s economic outlook, fueling the loonie’s appreciation. Canadian GDP likely grew by 6.5% in the first quarter, Statistics Canada said.

But that economic optimism could waver if the currency strengthens too much.

“Canadian economic exceptionalism rarely lasts – the loonie could have an Icarus moment in the months to come,” Schamotta said, referring to the Greek mythological character who flew too close to the sun and plunged into the sea when his wings melted.

(Reporting by Fergal Smith; Editing by Denny Thomas and Paul Simao)

Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

1 day ago

October 21, 2024

Anne Joseph

OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

5 days ago

October 17, 2024

Anne Joseph

OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

6 days ago

October 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

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