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Bank of Canada seen cutting bond purchases further as lockdowns ease



Canada’s trailblazing central bank is likely to cut its bond-buying program again this year, possibly as soon as July, as provinces ease curbs to contain the coronavirus pandemic and inflation pressures build, analysts said.

Strategists from half of Canada’s six largest banks expect the Bank of Canada to dial back its bond purchases to C$2 billion ($1.65 billion) per week or less – from the current level of C$3 billion per week – at the central bank’s July policy announcement, while the remainder see a reduction in October.

By April next year or earlier, purchases are likely to be C$1 billion per week or less, and continue for some time to offset the amount of bonds maturing on the central bank’s balance sheet, the analysts said this week.

In April, the BoC became the first major central bank to cut back on pandemic-era money-printing stimulus programs and signaled it could begin raising its key interest rate from the current floor of 0.25% in the second half of next year.

It said further cuts to bond purchases would be guided by its assessment of the “strength and durability” of economic recovery.

“When we get to July we will be presumably through these third-wave lockdowns and the economy looks to be further along its path towards full recovery,” said Andrew Kelvin, chief Canada strategist at TD Securities. That would imply “just a little bit less support from the BoC is needed,” he added.

In recent days, Quebec, British Columbia and Ontario, Canada’s three most populous provinces, have announced plans to ease restrictions.

Despite lockdowns, Canadian inflation rose in April at the fastest annual pace in a decade, moving above the top of the BoC’s target range of 1% to 3%. While that could be put down to a comparison with weak prices one year ago, not so for a monthly rise that was hotter than expected.

The central bank is due to have in hand the May inflation report as well as quarterly business and household surveys before its July meeting.

The surveys are likely “to further reinforce upside pressure on consumers’ and businesses’ inflation expectations,” said Derek Holt, vice president of capital markets economics at Scotiabank.

The U.S. Federal Reserve has not signaled it is ready to dial back quantitative easing but that may not deter the BoC.

Canada’s economy is “importing some easing from the Fed,” Kelvin said. “The more QE that the Federal Reserve does, the less QE the BoC needs to do.”

($1 = 1.2108 Canadian dollars)

(Reporting by Fergal Smith; Editing by Richard Chang)


Canadian retail sales slide in April, May as COVID-19 shutdown bites



december retail sales

Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Canadian dollar notches a 6-day high



Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Toronto Stock Exchange higher at open as energy stocks gain



Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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