The S&P/TSX Composite Index was down 1% towards the end of the noon hour on September 5. The Canadian dollar cracked the $0.81 mark in wake of a report from Statistics Canada that revealed 4.5% GDP growth in the most recent quarter, the fastest pace since 2011. Canada has now solidified its status as one of the most performing G7 countries in 2017, and there is little doubt among traders that the Bank of Canada will now move forward with a second rate hike as soon as the next meeting on Wednesday.
Traders have put a 57% chance of a second rate hike this week, but conventional wisdom still places the next hike in October when the Bank of Canada will be able to present more new data and a full forecast. With the stock market still on shaky ground and the housing market in the Greater Toronto Area in the midst of a significant correction, it may be prudent to hold off in order to reassure investors.
The Bank of Canada is now expected to commit to a more hawkish tone than the U.S. Federal Reserve, which has tempered its rate hike forecasts after recently disappointing data. If this trend continues the Canadian dollar could well push above the $0.85 mark and put increasing pressure on Canadian manufacturers, especially with NAFTA negotiations ongoing.
