From today's Custom
House Newsletter, as expected, Prime lowered .50% to 4.75% - no word on fixed
rates following, as yet.
Canadian Dollar Down
With Interest Rate Cut
The bank of
Canada delivered a 50 basis point interest rate cut this morning to take the
Bank’s overnight lending rate to 3.0%. In it’s accompanying statement, the Bank
maintained an easing bias, suggesting further rate cuts may be necessary given the depth of the economic
slowdown in the US. The Bank did, however, suggest that the timing of
future rate cuts would be dependent on a number of economic
variables including global economic growth and domestic inflation,
thereby downplaying expectations that further cuts should be considered
imminent. Either way, the fact that the Bank is maintaining an easing bias, has
caused the Canadian dollar to sell-off sharply against the
US dollar and most other currencies. The loonie has slipped below 99
cents against the US dollar and is now trading down 60 basis points on the day
at .9880 and showing signs that it wants to trade even lower.
Against other currencies, the Canadian dollar is giving up even
more ground and is trading at multi-month lows against the euro, and
Australian and New Zealand dollars, all currencies providing much higher yields
than the Canadian dollar. With the Bank of Canada indicating
that Canadian interest rates are likely to go lower before they go
higher, the wide interest differential between Canada and some of the
other countries sets up the dollar to be used as a carry
trade funding currency, and this is likely to add to the dollar’s woes
over the coming months. For instance,
traders can buy the Australian dollar forward against the Canadian dollar
and pick up a 4.70% yield advantage. So long as the yield differential does not
narrow, shorting CAD against AUD is an attractive trade and the Canadian dollar
has lost 13% of its value relative to the Australian dollar since the beginning
of the year. Against the US dollar, trade matters to the
Canadian dollar and the price of oil is dollar supportive. But against
other currencies like the Australian dollar and the euro, interest rate
differentials are more important, and falling Canadian interest rates have
caused the Canadian dollar to be the worst performing of the major currencies
over the past four months. Today’s monetary policy
announcement by the Bank of Canada suggests that the Canadian dollar likely has
further downside ahead, particularly against the Australian
dollar.
From my last note...A
reminder that 5.35% for a 5-year fixed is available on a quick closing.
Adjustable Rate Mortgages (ARM's) are still the most popular
product today as the declining rate market is conducive to keeping your option
open and snagging the lowest rate possible (if you are a "fixed rate"
personality type). Variable products with deep teaser rates can give you
a 6-month initial rate of
2.90% - the down side is the remainder of the term is
at Prime minus .25%, but these products are for those who actually prefer a
fixed rate and want the option of starting in an ARM while rates continue to
drift down, and the teaser up front is a major bonus - what incredible savings! The upshot is, don't lock in
at today's rate! And if you are blending with an old rate on a refinance make
sure you have run the numbers and are certain you're doing what's in your
best interest! If an ARM is what
you prefer, your patience has paid off!
Best regards,
Kathie Scott, AMP
The Gibbard Group of INVIS
Cell -
604-813-4543
Fax -
604-648-9974
kathie@gibbardgroup.com
www.kathiescott.com
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