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Learn extra: Will spring deliver a thaw in BoC’s hawkish fee freeze? | Wealth Skilled
Harvey notes that the shift in investor mindset round fee cuts largely comes right down to the comparatively excessive wage progress, which he sees as inconsistent with the Financial institution of Canada’s 2% inflation goal. On the identical time, international markets are pulling again considerably on their predictions of different central financial institution cuts, and Canada is being introduced together with that.
However, Harvey and Monex predict cuts to return in April, with some threat that the cuts are available March. Conflicting indicators, just like the wage progress numbers, shall be a part of the street to these cuts. Furthermore, Harvey believes the BoC shall be hesitant to maneuver too far-off from US Federal Reserve coverage. General he expects the BoC to take a cautious method and keep away from previous pitfalls the place particular knowledge factors had been overreacted to. As soon as the cuts do start, nevertheless, Harvey thinks that we might transfer in the direction of a extra impartial rate of interest of round 3.5% comparatively rapidly.
From an asset allocation standpoint, Harvey sees Canadian bonds as considerably extra engaging than their US counterparts. In November, US bonds seemed extra engaging, however their value motion since then has made them too costly at this level in his view. Canadian bonds, conversely, have been considerably ignored by traders and will current a chance. He presently nonetheless expects Canada to chop sooner and deeper than the US will, which ought to show advantageous for Canadian bond traders.
From a forex standpoint Harvey sees a Canadian greenback that presently just isn’t representing the weak spot of the Canadian financial system. CAD has had a robust few months in opposition to the USD, partially due to fee lower expectations within the US in addition to higher threat urge for food amongst traders. Now, nevertheless, as traders pull again in the direction of threat aversion considerably we may even see higher weak spot within the Canadian greenback.
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