{"id":929,"date":"2024-10-28T09:00:04","date_gmt":"2024-10-28T09:00:04","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/?p=929"},"modified":"2024-11-19T22:42:17","modified_gmt":"2024-11-19T22:42:17","slug":"with-rate-cuts-signalling-weaker-economy-watch-the-canadian-dollar","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/with-rate-cuts-signalling-weaker-economy-watch-the-canadian-dollar\/","title":{"rendered":"With rate cuts signalling weaker economy, watch the Canadian dollar"},"content":{"rendered":"

Martin Pelletier: Given the widening gap between our economy and America’s, we are not optimistic about our currency<\/p><\/blockquote>\n

While the\u00a0Bank of Canada<\/a>\u2019s\u00a0interest rate cut<\/a>\u00a0last week may be seen by some as good news, it points to worrisome underlying problems.<\/p>\n

The central bank cut rates by 50 basis points, sending its overnight rate down to 3.75 per cent. Interestingly, bond markets factored this in with no movement in the five-year Government of Canada bond yield following the announcement.<\/p>\n

\n
While\u00a0politicians are cheerleading rate cuts<\/a>\u00a0as a sign of inflation coming under control, the fact of the matter is it\u2019s a weakening economy that\u2019s responsible, as Genevieve Roch-Decter of Grit Capital\u00a0recently posted<\/a>\u00a0on X (formerly Twitter). She noted that Canada was the first G7 nation to cut rates as its economy is falling behind, with a number of subsequent cuts since.<\/div>\n
\n

https:\/\/x.com\/GRDecter\/status\/1849085230130332019<\/p>\n

According to a report by University of Calgary economist Trevor Tombe, by June this year, real GDP per capita had declined for five straight quarters. Over the previous year, per capita GDP fell by 2.2 per cent, and compared with 2022, it is down 3.6 per cent.<\/p>\n

\u201cThis has real implications for the economic wellbeing and standard of living of Canadians. Had Canada simply matched U.S. growth, for example, our economy would be 8.5 per cent larger today. That is roughly equivalent to $6,200 more annual income per Canadian. This growing gap is now the widest it has been in nearly a century, which should prompt serious concern,\u201d he writes in a study for the Fraser Institute,\u00a0Boosting Canada\u2019s Competitiveness by Reforming Business Taxation<\/a>.<\/p>\n

This brings to mind a great mantra: \u201cYou can make excuses or progress, but you can\u2019t make both.\u201d Unfortunately, all we\u2019re getting out of Ottawa is plenty of excuses with a Prime Minister unwilling to acknowledge the depth of the situation. This is an issue because the first step to fixing a problem is to acknowledge there is a problem.<\/p>\n

Despite the Liberal Party Caucus meeting last Wednesday, marked by some members\u2019 dissatisfaction with their leader, it looks like we\u2019re going to get more of the same unless there is a vote of non-confidence prior to the pre-set October 2025 election.<\/p>\n

Frankly, I\u2019m quite tired of writing about this and I\u2019m sure many Canadians are just as frustrated as I am. However, I do worry about desperate people doing desperate things, as a lot more damage can be done before next year\u2019s election.<\/p>\n

This means a weaker\u00a0Canadian dollar<\/a>\u00a0and an economy being pushed into a recession, paired with a worsening affordability crisis with such moves as the carbon tax continuing to take its toll on everyday Canadians. This says nothing of the incredible strain on housing, policing, education and healthcare worsened by record setting immigration policy.<\/p>\n

The debasement of our currency should be of serious concern. This late summer\u2019s short covering favouring the Canadian dollar over the U.S. dollar has now been given back as it now tests year-to-date lows. Fortunately, we took advantage of this short-term rally to buy more U.S. dollars for our clients as a hedge, but many Canadian investors are left exposed due to a home bias with their portfolios.<\/p>\n

A Vanguard report back in June found that Canadians allocate 50 per cent of their equity exposure to domestic holdings. This is 18 times more than the percentage of Canadian assets in the global equity market (which is roughly 2.7 per cent). Canada also imports US$280 billion worth of goods from the United States, a 33 per cent increase from 2016 lows. A weaker Canadian dollar will only add to the ongoing affordability challenges many Canadians are facing.<\/p>\n

Looking ahead, unless there are some serious changes made, we are not optimistic about our currency, especially given the widening disparity between our two economies. We need less cheerleading of rate cuts and an actual willingness to address that there is a problem here. Unfortunately, we may have to wait until this time next year for this to happen.<\/p>\n

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit\/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.<\/em><\/p>\n<\/div>\n<\/div>\n

View Financial Post article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Martin Pelletier: Given the widening gap between our economy and America’s, we are not optimistic about our currency While the\u00a0Bank of Canada\u2019s\u00a0interest rate cut\u00a0last week may be seen by some as good news, it points to worrisome underlying problems. The central bank cut rates by 50 basis points, sending its overnight rate down to 3.75 […]<\/p>\n","protected":false},"author":229,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-929","post","type-post","status-publish","format-standard","hentry","category-financial-post"],"_links":{"self":[{"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/posts\/929","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/users\/229"}],"replies":[{"embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/comments?post=929"}],"version-history":[{"count":3,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/posts\/929\/revisions"}],"predecessor-version":[{"id":1010,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/posts\/929\/revisions\/1010"}],"wp:attachment":[{"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/media?parent=929"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/categories?post=929"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/tags?post=929"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}