The Bank of Canada kicked off a rate-cutting cycle this month and now the question is: How quickly will the cuts continue?
Governor Tiff Macklem said they are taking decisions one meeting at a time and that it’s reasonable to expect more rate cuts if inflation continues to ease.
Later today we get the minutes of the June Bank of Canada meeting and that could offer more clues but right now, the market is pricing in a 64% chance of a BOC cut at the July 12 meeting and a 36% chance of staying on hold.
For the remainder of the year, 57 bps of further cuts are priced in.
USD/CAD is down 9 pips today with the US on holiday and the pair is trading at 1.3708.
I spoke with Reuters this week about the record short positioning in the loonie.
Scotia was out with a note today highlighting risks around the Canadian housing market:
“After seeing a slight bounce earlier this year, Canadian home prices
are back in decline in May, with second-hand properties driving the
decline. Moreover, despite May/June usually being peak housing market
activity month, unit sales have only been falling this year from their
January peak. Meanwhile, sellers are back in large proportion … This is
creating a market that for the first time in years is much more
favourable to buyers than sellers … the New Listing to Sales ratio
stands at some of its highest levels of the pre-Covid era (ex Financial
crisis) while the months of inventory at hand is also at its highest
since 2019. Despite the overall negative tone hovering over the Canadian
housing market, we would point out to two positive developments. First,
the market is deeply split between the recessionary markets of Ontario
(housing prices -3.7% YoY) and British Columbia (housing prices -1.2%)
while Quebec (+5.7% YoY) and the Prairies (+15% YoY) are still booming …
Second, the Bank of Canada’s recent rate cut will likely only start
impacting the market in July. In our view, expectations that the BoC was
about to embark on a rate cut campaign may have kept some buyers on the
sideline until rates start falling a tad. With another 75bp cuts priced
in for 2024, the housing market could thus see much stronger buyer’s
interest in the second half of this year”
