Despite a slight increase in Canada's inflation rate last month, the Bank of Canada remains determined to bring it down to 2%, with the possibility of another rate hike being considered in September. However, some economists believe that the positive overall figures may allow the Bank to pause on rate increases without a significant negative impact.
The US Dollar strengthens as several BRIC countries express support for the currency, while Fed officials remain quiet on rate cuts, and geopolitical tensions boost the Greenback during US trading hours.
The weakening of the U.S. dollar could benefit companies that export products and services, while importers may have to pay more for the goods they bring in, leading them to hold off on purchases. However, a more stable dollar can benefit both importers and exporters.
The Bank of Canada may shift its focus from the output gap to labor market indicators, such as unemployment and wages, in order to make inflation forecasts and guide its interest rate decisions, according to a report by CIBC economists. The report suggests that the labor market has become a more reliable indicator of excess demand or supply, and forecasts that if the job market outlook suggests it's not necessary, there may be no more rate hikes this year and rate cuts in early 2024.
The dollar is expected to continue strengthening as bond yields rise, with the Fed likely to hike rates at least once more this year, and a barrage of economic data this week will heavily influence Fed policy decisions and impact the direction of the dollar and interest rates.
The US Dollar performed well against major currencies, with the British Pound, Euro, and Canadian Dollar underperforming, while the Chinese Yuan and Australian Dollar fared better; the Federal Reserve's indication of a higher terminal rate and potential further borrowing cost increases contributed to the market sentiment, leading to lower US equity markets; upcoming economic data includes consumer confidence, inflation gauges from key European countries, and manufacturing PMI gauges from China.
Canada's upcoming gross domestic product (GDP) reading is expected to be closely watched by the Bank of Canada (BoC) ahead of its September interest rate decision, with economists predicting a slowdown in the second quarter that could lead to a pause in interest rate hikes despite higher-than-expected inflation. The impact of recent wildfires and a dock workers strike is also expected to affect the data.
The Federal Reserve is considering raising interest rates again in order to reduce inflation to its targeted levels, as indicated by Fed Governor Michelle W. Bowman, who stated that additional rate increases will likely be needed; however, conflicting economic indicators, such as job growth and wage growth, may complicate the decision-making process.
The Indian rupee is expected to strengthen against the US dollar due to weaker-than-expected US job openings, causing a decline in the dollar index and Treasury yields.
The Canadian dollar strengthens slightly against the US dollar in August despite concerns about China's economy and a decline in commodity-linked currencies.
British Columbia Premier David Eby has urged the Bank of Canada to halt further interest rate hikes, stating that another increase could worsen inflation and harm struggling Canadians. Eby emphasized the impact of rising rates on housing and called for a targeted approach to fighting inflation, focusing on housing and infrastructure improvements.
Canada's economy unexpectedly contracted in the second quarter, raising concerns of a possible recession, as declines in housing investment and slower exports and household spending impacted growth. This is likely to lead the central bank to hold interest rates steady.
The Canadian dollar weakened against the US dollar after data revealed that the country's economy unexpectedly contracted in the second quarter, reducing the likelihood of an interest rate hike from the Bank of Canada.
The Bank of Canada is set to issue an interest rate update, with experts predicting a potential rate hike that could impact mortgage payments and home values.
The Canadian government is facing higher debt servicing costs as interest rates rise, resulting in billions of additional dollars spent on interest payments and less money available for other government priorities, potentially leading to difficult decisions about cutting spending or increasing taxes.
The Bank of Canada is expected to maintain interest rates at a 22-year high of 5% despite a contraction in the economy, as inflation remains above the bank's target.
The US dollar strengthens to a six-month high after data reveals that the services sector unexpectedly picked up steam last month, indicating inflation pressure and suggesting that interest rates will remain elevated for longer.
Analysts have lowered their short-term forecasts for the Canadian dollar due to China's weakening economy and the widening yield gap between the US and Canada, but still project the currency to strengthen in the long term.
Canada added 40,000 jobs in August, surpassing economists' expectations, while the unemployment rate remained steady at 5.5%. This positive job growth suggests that the economy is not completely stalled, but the Bank of Canada is not expected to raise interest rates in the near future.
Bank of Canada Governor Tiff Macklem suggests that interest rates may not be high enough to bring inflation back down to target, indicating a hawkish approach after keeping borrowing costs at a 22-year high; Macklem highlights the need for more restrictive monetary policy to restore price stability and reduce inflation.
The value of the U.S. dollar has been strengthening against the Euro and the British Pound due to the continuing strength of the U.S. economy and the weakness of the European economies.
The Japanese yen strengthens against the US dollar as Bank of Japan Governor Kazuo Ueda hints at a potential shift away from negative interest rates.
Economists predict that Canada's inflation rate is likely to increase to around four percent in August, mainly due to higher gasoline prices, reversing the previous progress made.
Canada's inflation rate rose to 4.0% in August, driven by higher gasoline prices, while the Trans Mountain oil pipeline expansion is expected to disrupt oil flow to the US, potentially increasing prices, according to Statistics Canada. US Treasury Secretary Janet Yellen believes the US economy can withstand near-term risks such as strikes, government shutdowns, student loan payments, and spillovers from China's economic woes, stating evidence of a healthy labor market and consumer spending. Rent is rising faster in Brampton than in any other Canadian city, leading to financial difficulties for renters.
The Federal Reserve's continued message of higher interest rates is expected to impact Treasury yields and the U.S. dollar, with the 10-year Treasury yield predicted to experience a slight increase and the U.S. dollar expected to edge higher.
The Canadian dollar edged lower against the US dollar but still maintained a weekly gain due to higher oil prices and the possibility of more interest rate hikes by the Bank of Canada.
High inflation is leading to increased labor action in Canada as workers demand higher wages to combat the eroded purchasing power caused by rising costs of living, according to a report by RBC Economics. The report suggests that taming inflation is crucial to restoring peace in labor relations in the country.
The Pakistani rupee strengthened against the US dollar in the interbank market due to the government's crackdown on the money market.
The Federal Reserve has upgraded its economic outlook, indicating stronger growth and lower unemployment, but also plans to raise interest rates and keep borrowing costs elevated, causing disappointment in the markets and potential challenges for borrowers.
The U.S. dollar is gaining strength, causing concerns about interest rates and negatively impacting the S&P 500.
Rising interest rates, rather than inflation, are now a major concern for the US economy, as the bond market indicates that rates may stay high for an extended period of time, potentially posing significant challenges for the sustainability of government debt.
Cleveland Fed President Loretta Mester believes another interest rate hike is likely, and rates could remain higher for an extended period depending on the strength of the US economy, with the focus shifting to how long rates will be held at current levels.
The US dollar strengthened on positive US economic news, higher bond yields, and hawkish comments from Federal Reserve officials, while the euro weakened due to dollar strength and hawkish comments from the European Central Bank.
Summary: Bank of Canada deputy governor Nicolas Vincent states that businesses in Canada are increasing their prices more often and by larger amounts, contributing to higher-than-expected inflation.
The USD/CAD pair strengthened on the back of a hawkish tone from the Fed on interest rates, robust US employment data, and higher US Treasury yields, while downbeat crude oil prices weighed on the Canadian Dollar.
The Pakistani rupee has strengthened against the US dollar for a month due to a military-backed crackdown on currency smugglers, with analysts expecting the rupee to reach 280 to the dollar in the near future.
Surging U.S. real yields are strengthening the dollar's rebound and making it more profitable to bet on the currency, while also increasing the cost for bearish investors to bet against it.
US job growth exceeds expectations, with 336,000 jobs added in September, increasing the likelihood of further rate hikes by the Federal Reserve, while in Canada, job gains of 63,800 in September and soaring wages also raise the chances of another rate hike.
The strong US jobs report is increasing the likelihood of another Federal Reserve rate increase, which is adding to the pain in credit markets already affected by rising yields and could result in increased default risk and reduced profitability for corporate America.
/cloudfront-us-east-2.images.arcpublishing.com/reuters/75KVUJYITJMBBHALKQCKP4RWYQ.jpg)