Invesco Canada blog

Insights, commentary and investing expertise

The future of ECB QE: Is the end in sight?

In recent months, consumer prices in the euro area have begun to align with the European Central Bank’s (ECB) inflation target of just under 2%.1 We expected January headline inflation to be around 1.8%, a far cry from the deflationary conditions that convinced the ECB to begin its asset purchase program (quantitative easing, or QE) in 2015 and then extend it in 2016. As we look forward to 2017 and beyond, we ask whether QE should extend beyond March 2018 or will the inflation hawks and external voices force the ECB to end it before the region is ready?

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Currency outlook: CAD overvalued and USD mixed

The Canadian dollar has appreciated against the U.S. dollar since the U.S. presidential election in November. Some of the strength has been due to the higher price of oil on the back of promised cuts by OPEC producers in late 2016. In addition, a recent string of positive employment reports in Canada has supported the currency. Bank of Canada Governor Poloz attempted to limit further appreciation by mentioning that a rate cut was still possible at its January meeting with limited success. We believe the Canadian dollar remains overvalued.

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Interest-rate outlook: Fed hikes on the horizon?

Yields on Canadian government bonds have hovered in a range this year as the global yield sell-off has paused. The yield curve remains in a steepening trend as the Bank of Canada has attempted to keep the possibility of a rate cut on the table, although a recent string of positive employment surprises has made that possibility less likely. Canadian government bond yields are likely to remain range-bound in the near term until more certainty emerges around global economic prospects.

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Currency outlook: USD volatility and euro weakness

The Canadian dollar has bounced around since the U.S. presidential election as economic growth has shown positive signs but inflation continues to disappoint the Bank of Canada (BoC). It sold off initially after the Fed raised rates in December, but rallied back strongly after year end. The BoC stated at its January meeting that rate cuts are still a possibility, but it will likely wait until more clarity is available on U.S. fiscal and trade policy before taking action. The Canadian dollar remains overvalued, in our view, but will likely trade within a range in the near term.

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Interest-rate outlook: The aftermath of Trump’s win

Canadian government yields have remained under the same upward pressure felt globally in the aftermath of the U.S. presidential election which boosted expectations of higher growth and inflation fueled by U.S. fiscal stimulus and tax cuts. The Bank of Canada meeting in January recognized that Canada’s economy has shown some improvement, but emphasized there was more work needed to reduce excess capacity as inflation remains very low.

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BoC holds rates amid Trump policy uncertainty

The Bank of Canada (BoC) announced today that the overnight policy rate remained unchanged at 0.5%. There wasn’t much suspense heading into today’s monetary policy meeting as economic data had shown at least some improvement recently and a rate cut did not appear warranted.

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