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Here's what's in store for Canada's economy — and businesses — in the new year – Montreal Gazette

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Frances Donald, chief economist at Manulife, talks about what to expect from the health of Canada’s economy in 2020

Frances Donald, chief economist at Manulife, talks with the Financial Post’s Larysa Harapyn about what to expect from the health of Canada’s economy in 2020.

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Bank of Canada to raise rates in Q3 next year, possibly sooner: Reuters poll

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The Bank of Canada will raise rates as early as the third quarter of next year, at least three months earlier than previously expected, according to economists polled by Reuters who see a risk that the increase could come even sooner.

Just last month economists were almost evenly split on the risk of higher rates; now nearly all are saying sooner rather than later.

That shift in view, based on intensifying inflation pressures – owing to global supply chain bottlenecks, labour shortages and rising energy costs – is increasingly shared by forecasters around the world.

“With inflation pressures continuing to build globally, Canada‘s activity story looking robust, and with the jobs market strengthening more quickly than in most other countries, the odds are increasingly stacked in favour of earlier and more aggressive policy tightening next year,” said James Knightley, chief international economist at ING.

That view is in line with the central bank’s latest Business Outlook Survey, which reported firms anticipating stronger demand as the COVID-19 pandemic fades, but supply constraints threatening to limit sales and raise costs.

Canada‘s inflation rate accelerated to an 18-year high of 4.4% last month, driven by high gas prices, soaring housing costs and rising food prices, putting pressure on the BoC to consider hiking rates before long.

While the median view of economists in an Oct. 18-22 poll showed the BoC would keep rates unchanged at 0.25% through the first half of next year, rates are expected to rise by 25 basis points to 0.50% in the third quarter.

Financial market traders are pricing in the first hike as early as April.

Forecasts from economists on whether rates will go up in Q3 were on a knife’s edge. But the risk to their expectations was clear: 90% of respondents, or 18 of 20, said a BoC move would come earlier rather than later.

BIG DIFFERENCE

Based on a smaller sample of respondents, the BoC was then forecast to hike in the first quarter of 2023 to 0.75% and end the year at 1.25%.

If the poll is correct, the BoC will notably diverge from the U.S. Federal Reserve, which is expected to keep rates unchanged through the end of next year. [ECILT/US]

“The big difference between the two countries is (that) in Canada employment is now back to the pre-pandemic level, whereas in the U.S., it’s not,” said Stephen Brown, senior Canada economist at Capital Economics.

Inflation was expected to remain above the central bank’s target and to rise to 4.1% this quarter, up from 3.1% predicted three months back. It was then predicted to ease, averaging between 2.2% and 3.7% in each quarter next year. But next year’s 2.5% average forecast is up from 2.2% predicted in July.

“The second wave of inflation in 2022 will be much more interesting, where we will see some increasing wages alongside demand coming from people spending money,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets.

“That semi-normal to me would be the more risky inflation because it will be demand-driven, and if that’s the case, you would love to see the Bank of Canada and the Fed reacting to it,” said Tal, who expects both central banks to raise rates in the second half of 2022.

Growth was expected to take a hit this year. The export-driven economy would grow on average 5.0% this year, a sharp downgrade from 6.2% predicted three months back. For next year, it was expected to grow 4.0%, unchanged from the previous poll.

The BoC will also taper its asset purchase programme by C$1 billon from its current C$2 billion at its Oct. 27 meeting, the poll showed. That is also when the bank will provide its quarterly update on growth and inflation.

 

(Reporting by Mumal Rathore; Additonal reporting by Sarupya Ganguly; Polling by Prerana Bhat and Susobhan Sarkar; Editing by Ross Finley and David Holmes)

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Alberta government's focus to be on jobs and economy for fall legislature sitting, starting Monday – Edmonton Journal

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Alberta government’s focus to be on jobs and economy for fall legislature sitting, starting Monday  Edmonton Journal



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Dollar catches footing as inflation pressures rates outlook

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The dollar steadied on Monday after its steepest weekly loss in more than a month, as traders weigh the effect of inflation on the relative pace of looming rate hikes – with a wary eye on U.S. growth data and a European Central Bank meeting.

The greenback had softened, especially against the yen, after Federal Reserve Chair Jerome Powell said on Friday it was time to start cutting back asset purchases, though not yet time to begin raising interest rates.

His remarks came as investors have priced in Fed rate hikes starting in the second half of next year and yet have begun to trim long dollar positions in anticipation that other central banks could get moving even sooner.

On Monday, the dollar was firm at $1.1643 per euro and found a footing on the yen at 113.54 after Friday’s slide. The Australian and New Zealand dollars were held below the multi-month peaks they had scaled during last week. [AUD/]

The Antipodeans, along with sterling, had bounded ahead this month as traders scrambled to price in higher rates while inflation runs hot, with markets now eyeing a near 60% chance of a Bank of England hike next week.

Sterling was up 0.1% at $1.3772, but analysts were cautious about further gains especially as the Fed edges closer to tapering and policy tightening. The Aussie was steady at $0.7473 and the kiwi at $0.7157.

“Dollar risks remain skewed to the upside,” said Kim Mundy, a currency analyst at the Commonwealth Bank of Australia in Sydney.

“(Fed) members are slowly conceding that inflation risks are skewed to the upside (and) the upshot is that interest rate markets can continue to price a more aggressive Fed Funds rate hike cycle which can support the dollar.”

This week, Australian inflation data due on Wednesday is likely to set the tone for the next stage in a tussle between traders and a resolutely dovish central bank.

On Thursday, U.S. growth data is expected to show a slowdown in growth as consumer confidence has faltered, but a surprise on either side might have consequences for the interest rate outlook.

Also on Thursday the Bank of Japan and the European Central Bank meet. Neither are expected to adjust policy, but in Europe market gauges of projected inflation are at odds with the bank’s guidance.

In the background, traders remain nervous about trouble brewing at indebted developer China Evergrande Group. It surprised investors by averting default with a last-minute coupon payment last week, but other pressing debts loom.

China’s yuan held just shy of a five-month peak in offshore trade at 6.3804 per dollar. Cryptocurrencies were steady below the heights reached last week, with bitcoin up 2% at $62,000.

In emerging markets the beaten-down Turkish lira was braced for selling as state banks are expected to follow a surprise rate cut from the central bank.

========================================================

Currency bid prices at 0110 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.1645 $1.1646 -0.01% -4.69% +1.1649 +1.1626

 

Dollar/Yen

113.7350 113.4900 +0.18% +10.07% +113.7400 +113.5750

 

Euro/Yen

132.45 132.17 +0.21% +4.35% +132.4500 +132.1200

 

Dollar/Swiss

0.9163 0.9162 +0.00% +3.56% +0.9169 +0.9157

 

Sterling/Dollar

1.3771 1.3756 +0.13% +0.81% +1.3775 +1.3752

 

Dollar/Canadian

1.2362 1.2368 -0.03% -2.90% +1.2379 +1.2358

 

Aussie/Dollar

0.7478 0.7470 +0.11% -2.79% +0.7478 +0.7465

 

NZ

Dollar/Dollar 0.7161 0.7150 +0.15% -0.29% +0.7162 +0.7148

 

 

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

 

(Reporting by Tom Westbrook; Editing by Sam Holmes)

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