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USDCAD Surges To 6 Year Highs As Bank Of Canada Slashes GDP Forecasts, Unexpectedly Cuts Rates

Tyler Durden's picture




 

In what seems to have surprised FX trader, Bank of Canada has taken an ax to growth forecasts and rates...

  • *BOC CUTS CANADA 2015 GDP FORECAST TO 1.1% FROM 1.9%
  • *BANK OF CANADA CUTS 2Q GDP ESTIMATE TO -0.5% FROM 1.8%
  • *BOC SEES INCREASED DOWNSIDE RISKS TO CANADIAN INFLATION
  • *BANK OF CANADA CUTS BENCHMARK INTEREST RATE TO 0.5%
  • *CANADA OIL AND GAS INVESTMENT TO SHRINK 40% IN 2015, BOC SAYS
  • *BOC PROJECTIONS ASSUME CANADA DOLLAR AT 80 U.S. CENTS

Furthermore, it warns that "consumer debt vulnerabilities are edging higher" and export weakness is "puzzling."

USDCAD exploded to 6 year highs..

Full Statement (link):

The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

Total CPI inflation in Canada has been around 1 per cent in recent months, reflecting year-over-year price declines for consumer energy products. Core inflation has been close to 2 per cent, with disinflationary pressures from economic slack being offset by transitory effects of the past depreciation of the Canadian dollar and some sector-specific factors. Setting aside these transitory effects, the Bank judges that the underlying trend in inflation is about 1.5 to 1.7 per cent.

Global growth faltered in early 2015, principally in the United States and China.  Recent indicators suggest a rebound in the U.S. economy in the second half of this year, and growth is expected to be solid through the projection. In contrast, China is slowing amid an ongoing process of rebalancing to a more sustainable growth path. This has pulled down prices of certain commodities that are important to Canada’s exports. Financial conditions in major economies remain very accommodative and continue to provide much-needed support to economic activity. Global growth is expected to strengthen over the second half of 2015, averaging about 3 per cent for the year, and accelerate to around 3 1/2 per cent in 2016 and 2017.

The Bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection. The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities.  Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation.

The Bank expects growth to resume in the third quarter and begin to exceed potential again in the fourth quarter, led by the non-resource sectors of Canada’s economy. Outside the energy-producing regions, consumer confidence remains high and labour markets continue to improve. This will support consumption, which will also receive a fiscal boost. Recent evidence suggests a pickup in activity and rising capacity pressures among manufacturers, particularly those exporters that are most sensitive to movements in the Canadian dollar. Financial conditions for households and businesses remain very stimulative.

The Bank now projects Canada’s real GDP will grow by just over 1 per cent in 2015 and about 2 1/2 per cent in 2016 and 2017. With this revised growth profile, the output gap is significantly larger than was expected in April, and closes somewhat later. The Bank anticipates that the economy will return to full capacity and inflation to 2 per cent on a sustained basis in the first half of 2017.

The lower outlook for Canadian growth has increased the downside risks to inflation. While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment. Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.

*  *  *

 

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Wed, 07/15/2015 - 10:10 | 6315034 JustObserving
JustObserving's picture

When is the Canadian housing bubble going to burst?

U.S. short sellers betting on Canadian housing crash: ‘An accident waiting to happen

June 24, 2015

Large Wall Street investors who made billions when the U.S. housing market collapsed in 2008 are now betting real estate values in Vancouver and other Canadian cities will crash, financial insiders say.

The hedge fund investors, known as short sellers, are betting against what they believe is a housing bubble in Vancouver, Toronto, Calgary and other Canadian cities. They believe Canadians hold too much mortgage debt, and that Canadian banks, mortgage insurers and “subprime” private lenders will lose money on unpaid loans when property prices fall.

“The cross currents are beyond crazy in Vancouver — it’s a mix of money laundering, speculation, low interest rates,” said Marc Cohodes, once called Wall Street’s highest-profile short-seller by The New York Times. “A house is something you live in, but in Vancouver you guys are trading them like the penny stocks on Howe Street.”

He says Vancouver real estate has reached peak insanity, and any number of factors could trigger a collapse.

http://news.nationalpost.com/news/canada/u-s-short-sellers-betting-on-ca...

Wed, 07/15/2015 - 10:13 | 6315062 Spitzer
Spitzer's picture

Its been over a year since the oil crash (that I predicted to the hour)http://freegoldobserver.blogspot.ca/ And still, Calgary prices are stubbornly high. Even as rental vacancies are skyrocketing.

Wed, 07/15/2015 - 10:31 | 6315145 Waylon Bits
Waylon Bits's picture

Shit currency vs. Shit currency

Wed, 07/15/2015 - 10:35 | 6315150 BlowsAgainstthe...
BlowsAgainsttheEmpire's picture
  • *BOC SEES INCREASED DOWNSIDE RISKS TO CANADIAN INFLATION
  • Well, fu<k!  We can't have that.

     

    Wed, 07/15/2015 - 11:16 | 6315351 CheapBastard
    CheapBastard's picture
    Why Canada Is Headed for a Retail Bloodbath

     

    Wed, 07/15/2015 - 10:55 | 6315242 firstdivision
    firstdivision's picture

    Now you know where BOC stores its gold and other assets. 

    Wed, 07/15/2015 - 13:11 | 6315911 Bullwinkle42
    Bullwinkle42's picture

    ... Well, as a Canadian ZHer, it's worrisome to know we have next to nothing in the way of sovereign held gold. Damn vulnerable.

    Wed, 07/15/2015 - 10:43 | 6315193 Rentenmark
    Rentenmark's picture

    He says Vancouver real estate has reached peak insanity, and any number of factors could trigger a collapse.

     

    Could reduced GDP be one of those factors?????  Hurry, print us some GDP!

    Wed, 07/15/2015 - 11:12 | 6315314 CPL
    CPL's picture

    They want to but then they'd cut the throats of the pensioners with hyperinflation and with the huge shortfalls reported in all the pensions across public and private sector management groups.  The house of cards was going to fall down anyways, that would be a guarentee with the math in the situation.  The Canadian government should have never allowed the take over in the 1960's even though it was on record that this would be the outcome, then again it was the cold war and there were a zillion other excuses to switch over to the horribly broken system that's having heart attacks in inches at the moment.  Otherwise, no fuck's given.  They made their own bed, they can sleep in it.

    BitCoin, get some and get out of the way.

    Wed, 07/15/2015 - 10:11 | 6315052 Spitzer
    Spitzer's picture

    You Yanks would not believe the bubble here in Vancouver. Its fuct man. This is fuct.

    Calgary is hurting from low oil but prices sure havn't moved much. What gives ?

    Wed, 07/15/2015 - 10:17 | 6315079 Bopper09
    Bopper09's picture

    You can say fucked here.

    Wed, 07/15/2015 - 10:20 | 6315099 NotApplicable
    NotApplicable's picture

    Fucked

    Wed, 07/15/2015 - 10:29 | 6315136 tgmur10
    tgmur10's picture

    Fucked...   I feel better now

    Wed, 07/15/2015 - 10:25 | 6315125 tmosley
    tmosley's picture

    Chinks haven't pulled their money yet.

    Looking forward to buying it up for pennies.

    Wed, 07/15/2015 - 10:31 | 6315144 Eternal Complainer
    Eternal Complainer's picture

    As am I.
    :)

    Wed, 07/15/2015 - 10:42 | 6315187 oddjob
    oddjob's picture

    Even you should understand an interest rate cut will support housing prices.

    Wed, 07/15/2015 - 10:58 | 6315252 Dominus Ludificatio
    Dominus Ludificatio's picture

    You may have to wait a long time because righ now  even dogs want a nice luxury home.Young Chinese  students will tell their rich parents to come over to Canada and park their money there.There is no need for them to learn the english language either.

    Wed, 07/15/2015 - 10:44 | 6315198 Dominus Ludificatio
    Dominus Ludificatio's picture

    Real estate has been and is still the no.1 creator of wealth in the world.Vancouver is like heaven to rich foreigners.Don't complain ,because it could be much worse if no one wanted to live there even if housing were affordable.It is a worldwide fact .People have less opportunities in small communities and will always move to big cities. Calgary must  not be hurting all that much and people give up expensive toys and lifestyle befoe their homes..

    Wed, 07/15/2015 - 10:58 | 6315250 i_call_you_my_base
    i_call_you_my_base's picture

    Since only half of a population owns a home, it generates wealth for half and destroys the wealth of the other half. If you and everyone you know owns, you are biased toward believing that increased housing prices is positive. For many others it saps discretional spending and impoverishes.

    Wed, 07/15/2015 - 11:22 | 6315362 CheapBastard
    CheapBastard's picture

    The pollution back home is so bad can't blame them for wanting a Big House in Canada, Australia or USA. My friend, a native Beijinger [if that's what they're called] just moved herself and her entire family to New Zealand ... the main reason; clean air.

     

    Her story, and many like her, is really incredible how they all became multi-millionaires due to their massive QE trickling down to anyone who held an aprtment or two in the City Center.

     

     

    Wed, 07/15/2015 - 13:02 | 6315871 mtl4
    mtl4's picture

    I think the bubble may actually increase because the USD will be appreciating considerably against the CAD in the next 2 years so even if China starts pulling out there will be plenty of Americans coming to backfill that as properties from their perspective get cheaper by the day.

    Wed, 07/15/2015 - 10:11 | 6315053 asteroids
    asteroids's picture

    I don't think the housing buble will burst. The banks would be pulverized. They'll let the Loonie fall first and pray for recovery. Which, due to demographics will never happen. Expect the Loonie to fall to to possibly 50cents to the American peso and stay there for a long long time.

    Wed, 07/15/2015 - 11:24 | 6315379 CheapBastard
    CheapBastard's picture

    I agree. Canada will react the same way as the fed and prop up its banks claiming to be 'saving the home owners' whom in fact, they really don't give a hoot about.

     

    It's all about saving bankers.

    Wed, 07/15/2015 - 13:33 | 6316035 The Deacon
    The Deacon's picture

    It won't be as bad as you think.

     

    25% down mortgages are held by the big 5 banks.

     

    All the insured mortgages....5% to less than 25% down...These are held by CMHC....Part of the government.

     

    So it's essentially the taxpayer that is on the hook.

    Wed, 07/15/2015 - 10:15 | 6315063 Latitude25
    Latitude25's picture

    I know you Canadians tried to hold the line on bank sanity but in the end the multinational forces of corruption were too strong.  Welcome to global banker conquest.

    Wed, 07/15/2015 - 10:21 | 6315103 Spitzer
    Spitzer's picture

    How is having a 5 bank oligopoly "holding the line" on sanity ? At least you guys just binge drank a pack of Budwiser and then crashed out and sobered up a bit. We are the 50 year old alcoholic that keeps pouring himself stronger ones. This rate cut is moonshine. We are on the moonshine now. How much moonshine we can drink remains to be seen.

    Wed, 07/15/2015 - 12:52 | 6315828 robertocarlos
    robertocarlos's picture

    We will drink hairspray if we run out of moonshine. You mix it with orange drink and it goes down OK.

    Wed, 07/15/2015 - 10:13 | 6315066 Iam Yue2
    Iam Yue2's picture

    All so logical!

     

    "Another cut to Canada’s interest rate could make housing even more expensive."

     

    http://news.ubc.ca/2015/07/14/another-cut-to-canadas-interest-rate-could...

    Wed, 07/15/2015 - 10:15 | 6315072 Bopper09
    Bopper09's picture

    See, we have unpayable debt too!  Just like everyone else.  You guys will cut us a break on hockey sticks though, eh?

    Wed, 07/15/2015 - 10:16 | 6315075 skbull44
    skbull44's picture

    Not to worry, all our 'leaders' assure us it's 'contained'!
    Time for another Timmy's double-double as I head to the rink...
    http://olduvai.ca

    Wed, 07/15/2015 - 10:17 | 6315078 Maplehood
    Maplehood's picture

    Why not smash gold and silver while they're at it?  Miners are the cheapest relative to gold in over 30 years!

    http://www.goldsqueeze.com/analysis/gold-miners-cheapest-relative-to-gol...

     

    Wed, 07/15/2015 - 10:18 | 6315082 Hohum
    Hohum's picture

    Well that's a surprise, eh?

    Wed, 07/15/2015 - 10:19 | 6315091 elegance
    elegance's picture

    I wonder when will Canadian team again win Stanley cup... Never?

    Wed, 07/15/2015 - 10:38 | 6315170 Eternal Complainer
    Eternal Complainer's picture

    ahh, the eternal question. Nothing is more important to the typical canadian than hockey. Its all he can think about during the off season.
    Forget housing bubbles, personal debt loads or rate cuts.
    Hockey!!

    Wed, 07/15/2015 - 11:13 | 6315337 Colonel Klink
    Colonel Klink's picture

    No different than the brainwashed idiots here who's life revolves around the National Felons League.

    Wed, 07/15/2015 - 13:19 | 6315947 Bullwinkle42
    Bullwinkle42's picture

    Colonel, to be fair, let's not forget NASCAR ... Round and round. Can't say we should feel superior, as the more I learn about the way our world is a controlled cesspool ( red pill ZH immersion ) , the more these distractions hold some pull.

    Wed, 07/15/2015 - 10:22 | 6315112 Colonel Klink
    Colonel Klink's picture

    You're getting hosed, hosers!

    Wed, 07/15/2015 - 10:32 | 6315139 1stepcloser
    1stepcloser's picture

    molson and moosehead are getting cheaper in FRN terms....

    -Gartman

     

    Wed, 07/15/2015 - 10:35 | 6315164 Tribulation Blues
    Tribulation Blues's picture

    The Elite have had their intranet-website leaked, proving they are Satanists and also that they are working with the Annunaki! The photos of the Illuminati posing with the ET's are quite astounding. http://revelation12.ca/?p=2089

    Wed, 07/15/2015 - 13:23 | 6315969 ceilidh_trail
    ceilidh_trail's picture

    Alexander Kieths

    Wed, 07/15/2015 - 10:34 | 6315156 Seasmoke
    Seasmoke's picture

    How will the USD collapse when all it ever does is go higher and higher. And Gold goes lower and lower ????

    Wed, 07/15/2015 - 10:49 | 6315196 1stepcloser
    1stepcloser's picture

    When everyone is in the (FRN) toilet...it will get flushed...

    Wed, 07/15/2015 - 10:41 | 6315184 Rentenmark
    Rentenmark's picture

    This is probably not good for the Canuck housing bubble.  Which in turn, will be really bad for "Love it or List it" and the "Property Brothers".  I guess on the upside their can be a Canuck version of "Flip or Flop" when the foreclosures pile up.

    Wed, 07/15/2015 - 10:44 | 6315197 oddjob
    oddjob's picture

    Only problem with that thesis is a cheaper loonie only makes housing prices more affordable for foreign buyers.

    Wed, 07/15/2015 - 12:34 | 6315741 Pareto
    Pareto's picture

    Exactly!  Wonder how the "Wall Street betting on the short side of Canada's housing market" traders are making out today.  Or for the last 3 years for that matter - as they no doubt have been getting their asses handed to them.  Todays is awesome news for homeowners (existing and prospective) - but terrible news for savers.  the Keynesian mantra of spending and debasing your way to prosperity is very much alive and well in Canada.

    Wed, 07/15/2015 - 10:46 | 6315206 Boston
    Boston's picture

    CAD (in USD) has broken a 12 year uptrend line. Next level of support at ~USD 0.72 (the lows in 2008-2009). If that doesn't hold, then the CAD may dive back down to the low 0.60 range, essentially round-tripping its entire move starting in 2002-2003.

    Wed, 07/15/2015 - 12:45 | 6315804 robertocarlos
    robertocarlos's picture

    Sixty cents! Good bye NHL hockey in most Canadian cities.

    Wed, 07/15/2015 - 10:48 | 6315211 hound dog vigilante
    hound dog vigilante's picture

     

     

    ...export weakness is "puzzling."

     

    global economic contraction. puzzle solved.

     

    Wed, 07/15/2015 - 11:10 | 6315304 kowalli
    kowalli's picture

    another rate cut, GJ

    Wed, 07/15/2015 - 11:12 | 6315330 Atomizer
    Atomizer's picture

    How is Bill Clintons NAFTA trade agreement working out for you Canada? 

    Wed, 07/15/2015 - 14:21 | 6316295 MASTER OF UNIVERSE
    MASTER OF UNIVERSE's picture

    About as well as American Hegemony is working for the USA reserve currency status on a global basis, methinks. Don't forget that free markets automatically balance themselves with time, eh.

     

    Oh yeah, I forgot, they are fixed.

    Wed, 07/15/2015 - 11:33 | 6315430 Big_X
    Big_X's picture

    BOC: "Porkins! Pull up!"

    Yellen: "I can hold it!"

    Wed, 07/15/2015 - 12:02 | 6315571 O-Nomics
    O-Nomics's picture

    I took a look at Manufacturer's inventory to sales ratio for U.S. & Canada yesterday and combined the data in a single chart:

    http://www.chpc.biz/history-readings/dollar-pinching

    On both sides of the border, manufacturer's inventory levels are rising and retail sales are dropping; the trend is accelerating. 

    Included also is the Vice News piece on Alberta Oil.
    Wed, 07/15/2015 - 12:13 | 6315636 rosiescenario
    rosiescenario's picture

    "...export weakness is "puzzling."

     

    Jeez, might that 'puzzle' include lack of demand from China?? It is not a puzzle for Australia or Brazil......

    Wed, 07/15/2015 - 12:42 | 6315790 robertocarlos
    robertocarlos's picture

    Canada is different than the USA. We will eat Kraft Dinner every day if that's the only way to pay the mortgage.

    Wed, 07/15/2015 - 13:11 | 6315909 nowhereman
    nowhereman's picture

    A few simple questions, 

    Just how well are the sanctions on Russia working out for you?

    Why are you puzzled about the drop in non-energy exports?

    Could the Russian counter-sanctions be more than you bargained for?

    Could the US/Saudi manipulated oil price drop be hurting just a tad?

    Is it possible that you picked the wrong side in the Ukrainian debacle?

    Still waiting on those F35's?

    Just wondering is all.

    Wed, 07/15/2015 - 14:10 | 6316249 MASTER OF UNIVERSE
    MASTER OF UNIVERSE's picture

    That makes 30 business quarters where the cocksuckers at the BofC have lowered their botched estimates because they are full fledged wankers that would not know how to buy a fucking clue if their cocksucking lives depended on it, Mr. Harper.

     

    FUCK I despise Poloz 'the retard' Governor of the Bank of CANADA.

     

    NOTE: Steven Harper is a functional retard that supports other functional retards in CANADA, and throughout the World.

     

    p.s. the best predictor of future behaviour is past behaviour, Mr. Harper.

     

    ANYONE BUT CONSERVATIVE in 2015. ABC, Mr. Harper!

    Wed, 07/15/2015 - 14:19 | 6316291 gcjohns1971
    gcjohns1971's picture

    Cut rates because, hmmmm,  ahhh, cut them because...

    Hmmm, because...

    Because everything is so great that just across the border Mr Yellen and Co. are ready to raise rates sharply!!

     

    Exsqueeze me?

    Do NOT follow this link or you will be banned from the site!