Bank of Canada capitulates: cuts outlook, loonie tanks

Today the Bank of Canada confirmed a technical recession of negative growth through the first half of 2015 and reluctantly lowered its growth forecasts for the whole year to just over 1%. With their policy rate already at .5%, there is little monetary meat left to entice animal spirits. In terms of growth, rate cuts here are symbolic at best  At worst, they may spur some more high risk lending into consumer and corporate sectors (especially energy) which are already way past prudent levels.  See: BOC lowers overnight rate target to 1/2 percent.

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 noncommodities. 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.

So much for a manufacturing rebound being enough to offset the commodities’ meltdown. Oil and gas investment is expected to fall 40% in 2015 alone.  So much for a quick rebound in oil prices. Such expectations are likely to be as unrealistic for the second half of the year as they were for the first.

With the world’s stock and bond markets now near universally contorted and broken beyond belief with relentless intervention and HFT gaming everywhere, currency exchange rates –the world’s largest markets–are the last, best indicators resembling anything close to free market forces.

In the land of the blind, the one-eyed man is king, and the US dollar is soaring again against the benchmark of world currencies.  The loonie on the other hand, continues its well-earned comeuppance, this morning breaking marginally below the 2009 low.  The .67 to .72 range (green band below) remains a probable retest as all the gains made in the secular boom (2001-2011) are evaporated once more and Canada searches for new ways to diversify itself beyond rocks, trees and credit-crazy consumers spending money they don’t have, and will now be working years to repay.  Necessity is the mother of invention.

FXC July 15 2015

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