Treasury Board President Jean-Yves Duclos says one lesson learned from recessions and depressions past is to veer away from under-investing in the economy as a crisis comes to an end.
While the COVID-19 pandemic continues to grip much of the country — something Duclos himself didn’t expect to see more than one year on — it’s advice he’s backing as the federal government maps out its economic recovery from the global public health emergency.
“There is unfortunately … a tendency to under react, to be under prepared and to be under reactive … to the challenges posed either by the health or economic crisis,” the former economics professor said in an interview on Rosemary Barton Live.
“That is a very unfortunate outcome because it means that we are then faced with higher unemployment, lower growth, lower living standards for Canadians and therefore lower taxes and greater deficits over the longer term.”
When the first federal budget in two years is presented later this month, it’s expected to include details of Ottawa’s three-year stimulus plan, which is valued between $70 billion and $100 billion and is intended to spark the country’s post-pandemic recovery.
In a pre-budget outlook published last week, Canada’s Parliamentary Budget Officer Yves Giroux said the temporary package could provide a “significant boost” to Canada’s economy, but cautioned it could potentially result in “materially larger budget deficits.”
Feds will support Canadians for ‘as long as it takes’
The stimulus plan was not factored into the PBO’s overall report due to a lack of details about the package. The spending watchdog projected the government would run a $363.4 billion deficit in the 2020-21 fiscal year — lower than the $381 billion figure Ottawa predicted last fall.
But the PBO noted the deficit should decrease in the years ahead — and projected employment would return to pre-pandemic levels by the end of 2021.
We are facing a third wave, which was both unexpected and certainly not the outcome we were hoping for…– Treasury Board President Jean-Yves Duclos
When asked by CBC chief political correspondent Rosemary Barton whether pandemic support for Canadians should continue to be extended, Duclos said the government plans to stick around “for as long as it takes.”
“Obviously, we are facing a third wave, which was both unexpected and certainly not the outcome we were hoping for at this time of the year. I think we all look forward to seeing the budget on the 19th of April,” he said.
Variant-driven surge in cases
The PBO estimate was crafted with the assumption that a so-called “third wave” of COVID-19 cases and infections of coronavirus variants would not be severe, particularly as more Canadians get vaccinated.
In recent days, parts of Quebec have shut down amid a rise in cases, while Ontario imposed an “emergency brake” Saturday to curb the rapid spread of the virus. British Columbia, meanwhile, implemented three weeks of its own sweeping restrictions as variants of concern drive transmission of COVID-19.
The country surpassed one million confirmed cases of COVID-19 this weekend.
Duclos touted Canada’s portfolio of vaccines and ramped-up delivery schedule as an optimistic measure against the virus’s continuing reach, but said Canadians must still be “mindful and focus on the work that each of us needs to do in the next few critical weeks.”
That includes refraining from any non-essential travel, regardless of someone’s vaccination status.
“It’s not the time to travel now and it’s not the time to consider opening up our borders with any country, including the United States,” Duclos said.
The U.S. Centers for Disease Control declared last week that people who are fully vaccinated can travel within the country without requiring a COVID-19 test or needing to quarantine.
“Even in the United States, where vaccination is more advanced … we’re currently speaking of a fourth wave,” Duclos said. “So that tells us that vaccination is not enough.”
You can watch full episodes of Rosemary Barton Live on CBC Gem, the CBC’s streaming service.
Bank of Canada signals rate hike in 2022, tapers bond purchases
By Julie Gordon and David Ljunggren
OTTAWA (Reuters) -The Bank of Canada signaled on Wednesday that it could start hiking interest rates in late 2022, as it sharply boosted its outlook for the Canadian economy and reduced the scope of its bond buying program.
The central bank said it now expects economic slack to be absorbed in the second half of 2022, from a previous forecast of into 2023. It held its key overnight rate steady at 0.25%.
Governor Tiff Macklem, speaking to reporters after the decision, made clear that while the bank is committed to refrain from raising rates until the economy is running at full capacity, there is no guarantee borrowing costs will rise when those conditions are met.
“What we do when those conditions are met, we’ll have to assess that at the time. There’s nothing mechanical,” he said, adding: “We’re looking for a full recovery, we’re not going to count our chickens before they’re hatched.”
The Bank also said it now believes the COVID-19 pandemic will be “less detrimental” than previously assessed to the economy’s potential output.
Canada‘s annual inflation rate doubled to 2.2% in March, Statistics Canada said separately, in part due to a statistical effect caused by a sharp deceleration last year during the coronavirus pandemic.
The Bank of Canada targets the midpoint of an control range of 1% to 3%. It expects inflation to temporarily rise to about 3% this year, before falling to around 2% in the second half. It will then fall further in early 2022 before recovering.
Canada‘s economy is expected to grow 6.5% in 2021, up from a forecast of 4.0% in January, the central bank said in its spring Monetary Policy Report, also released Wednesday.
It sees economic growth in the United States, which is Canada‘s largest trading partner, at 7.0% this year, up from 5.0%.
Much of the growth comes down to a massive U.S. stimulus plan passed in March and Canada‘s own stimulus package, unveiled Monday as part of Prime Minister Justin Trudeau’s government‘s first budget in more than two years.
“Our projection at a macro level really captures the fiscal stimulus that has been announced both by provincial governments and to a large degree the federal government,” said Macklem.
The Bank of Canada cut its weekly net purchases of Canadian government bonds to a target of C$3 billion ($2.4 billion) from C$4 billion, saying the adjustment reflected the progress made in the economic recovery.
“Certainly this is a more hawkish statement that begins to lay the foundations for the removal of the substantial monetary policy support that has been put in place over the past year,” said Josh Nye, senior economist at RBC Economics.
While recent job growth looks positive, the Bank warned it may take considerable time for full employment to be reached. Due to population growth, Canada needs to add 475,000 jobs to return to its pre-pandemic employment rate, it said.
The Canadian dollar strengthened as much as 1.2% to 1.2459 per greenback, or 80.26 U.S. cents, its biggest gain since last June, while Canada‘s 2-year yield jumped about 4 basis points to 0.334%.
(Reporting by Julie Gordon and David Ljunggren, additional reporting by Steve Scherer, Fergal Smith, Nia Williams, Jeff Lewis and Moira Warburton; Editing by Franklin Paul, Paul Simao and David Gregorio)
U.S. dollar rebound after Canada tips toward higher rates
By David Henry
NEW YORK (Reuters) – A U.S. dollar rebound against major currencies was interrupted on Wednesday after Canada‘s central bank signaled it could start an interest rate hike in 2022 and reduced the scope of its asset-buying program.
The dollar index, which tracks the U.S. currency against six major peers, turned down after the announcement from the Bank of Canada and was off by 0.1% in late afternoon (1946 GMT) in New York after having been up as much as 0.24% for the day. The greenback lost about 1% against the Canadian dollar.
Earlier the U.S. dollar had rebounded from a seven-week low hit overnight against major currencies as broad weakness in stock markets triggered by a resurgence of COVID-19 cases in India and Japan encouraged a retreat to the safe-haven appeal of the greenback.
The safety bid had also supported the Swiss franc and the Japanese yen as the bright outlook for a global recovery dimmed.
But the catalyst for the move between the two North American dollars on Wednesday was a reminder that the outlook for changes in interest rates have been key to currencies as recoveries unfold. The greenback weakened through much of April as U.S. interest rates declined and as traders bet that vaccinations would open up a stronger global economic recovery and drive demand for riskier and higher-yielding currencies.
The greenback’s bounce had come with softer U.S. Treasury yields as investors reconsidered how long it might take before inflation forces the Federal Reserve to tighten monetary policy and as they saw prices for oil and stocks hit on Tuesday by the prospect of a slower global recovery because of more COVID-19 cases.
The Fed’s Open Market Committee meets next week and the European Central Bank decides policy on Thursday. Though neither is expected to signal a change in policy now, traders may hold back from big bets for a few days, said Joseph Manimbo, senior market analyst at Western Union Business Solutions.
“I think the market is just going to play it carefully in case the Fed changes its tune,” Manimbo said.
At the moment, he sees the market acting as though it is at “somewhat of a crossroads for the dollar given that it has struggled this month.”
Some analysts have said that a new inclination by the Bank of Canada to tighten monetary policy could prove to foreshadow changes by other central banks.
The Bank of Canada sharply raised its outlook for the economy and reduced the scope of its large-scale asset-buying program while keeping its key interest rate steady. It said the pandemic will be “less detrimental” to the economy than it had thought.
The central bank’s message brought back some of the appetite for risk, which carried over to other commodity-linked currencies, strategists at ANZ Research noted. The Australian and New Zealand dollars gained about 0.5%.
The benchmark 10-year Treasury yield climbed to 1.58% on the news from Canada and then hovered around 1.57%, not far from the 1.60% level at the start of the week, as the note consolidated gains after a reversal that had driven yields to a 14-month high at 1.7760% last month. The note held steady even after an auction of 20-year bonds showed strong demand.
The biggest casualty of the dollar’s rise in Wednesday trading was the euro, with the single currency weakening as much as 0.24%. It was last flat at $1.2032 after touching a seven-week high of $1.2079 overnight.
The Japanese yen, often seen as a safer refuge than the dollar, gained against the greenback to 107.86 but then drifted back to 108.08.
In cryptocurrencies, bitcoin traded around $55,500, consolidating after its dip to as low as $51,541.16 on Sunday. It set a record high at $64,895.22 on April 14.
Graphic: EURUSD and CESI – https://fingfx.thomsonreuters.com/gfx/mkt/yzdpxbkwdpx/EURUSD%20and%20CESI.JPG
(Reporting by David Henry in New York and Saikat Chatterjee in London; Editing by Will Dunham, Hugh Lawson, Jonathan Oatis and Sonya Hepinstall)
Canadian Dollar Gain Biggest in 10 months as Bank of Canada cuts stimulus
By Fergal Smith
TORONTO (Reuters) – The Canadian dollar surged by the most since June 2020 against its U.S. counterpart on Wednesday and the Toronto stock market rebounded as investors welcomed a move by the Bank of Canada to dial back emergency support for the economy.
The loonie strengthened 0.9% to 1.2495 per U.S. dollar, or 80.03 U.S. cents. Canada‘s main stock index ended 0.5% higher at 19,143.25, clawing back some of its decline over the previous two days.
“I think we are seeing positive sentiment toward the Canadian economy coming off the comments from the Bank of Canada today,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
The Bank of Canada signaled that it could start hiking interest rates in late 2022, as it sharply boosted its outlook for the Canadian economy and cut the pace of bond purchases to C$3 billion per week from C$4 billion.
The central bank began a large-scale bond buying program last year to support the economy during the coronavirus crisis.
The reduction in stimulus puts Canada‘s central bank at odds with some other major central banks, such as the Federal Reserve and the European Central Bank, that have said they will maintain or even increase the pace of bond buying.
“It makes sense that Canada might be one of the ones to start scaling back first … our economic numbers have been quite positive,” Cieszynski said.
Canada‘s annual inflation rate doubled to 2.2% in March, Statistics Canada said, while the average of the Bank of Canada‘s three core measures was 1.9%, up from 1.8%.
The Canadian dollar, which touched its strongest intraday level since March 18 at 1.2455, was able to rally despite pressure on the price of oil, one of Canada‘s major exports.
U.S. crude oil futures settled 2.1% lower at $61.35 a barrel amid concerns that surging COVID-19 cases in India will drive down fuel demand in the world’s third-biggest oil importer.
Still, the Toronto Stock Exchange’s energy sector advanced 0.9%, while the materials group was up 1.1%, bolstered by higher gold prices. Last Friday, the TSX notched a record high at 19,380.68.
Canadian government bond yields were higher across the curve. The 2-year rose 2.2 basis points to 0.317%, near the top if its range since the start of the year.
(Reporting by Fergal Smith; Editing by Kirsten Donovan and David Gregorio)
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