HIGHLIGHTS OF THE WEEK – Feb 4
- Capital outflows out of emerging markets, and BIITS in particular, intensified this week, leading the central banks of India, Turkey, and South Africa to raise their policy interest rates.
- Turbulence among EMs did not undermine the Fed’s resolve to reduce asset purchases, with the FOMC trimming the pace of bond buying by $10bn to $65bn per month, without even a passing reference in the statement to the current volatility.
- As such, it would appear that the FOMC believes that the current bout of volatility is transitory and is unlikely to materially impact the global outlook. Moreover, the cut in bond buying is a vote of confidence in the strength of U.S. recovery, which should prop up global growth (and EM exports) this year.
- This belief was underscored by the advance estimate of fourth quarter GDP, which grew by a healthy 3.2% on consumer and export strength.
- The Loonie fell below US$0.89 this week, the first time Canada’s currency has breached the US$0.90 mark since August 2009. The recent rout puts January on track to be one of the worst months for the currency on record, going back to the 1950s.
- There are many reasons to be negative about the currency in the near-term. Indeed, we anticipate the Loonie to depreciate further to $0.85 cents by the summer before slowly regaining its former ground.
- However, one should not take the currency’s pullback as a sign that the Canadian economy is down and out. The reality is quite the opposite. Real GDP growth for November released on Friday indicated that economic momentum is building. This sets the stage for a more robust pace of growth in 2014.
For further information, please contact:
John Maveety Manager, Residential Mortgages – Greater Ottawa Area
TD Canada Trust T: (613) 371-1984 F: (888) 899-1984 P: (866) 767-5446