Fed and Bank of Canada face rare contrast

“Over the sweep of time, the Canadian and U.S. economies have tended to move in lock-step.

Just not right now. From their currencies to shortterm interest-rate prospects, the fortunes of the two close trading partners are seemingly on different tracks. Canada is flirting with recession, while the U.S. recovery appears poised to take off.

The divergence story was on display again as the U.S. Federal Reserve Board moved an important step closer to its first interest-rate hike in more than a decade as it highlighted improvements in the job market,” wrote Barrie McKenna for The Globe and Mail on Thursday July 30, 2015.

McKenna continued, “In Canada, the fallout from the collapse in the price of oil is proving to be deeper and more enduring than many analysts expected, sending business investment plunging and the economy into reverse. Partial readings suggest that gross domestic product shrank in the first half of the year, meeting the traditional litmus test of a recession.

The Bank of Canada has now cut its key overnight rate twice in 2015 – most recently on July 15, when it lowered its key overnight rate 0.5 per cent.

The next rate-setting date for the Canadian central bank is Sept. 9, and financial markets are so far pricing in a roughly 40 per cent chance of another rate cut.”

Read the full article here.

Raymond Matt, CFP, CLU, TEP, CHS

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