Fed expected to outpace BoC rate cuts by end of 2024: top strategist
One market strategist says recent changes in market sentiment could act as a tailwind for the value of the Canadian dollar.
Karl Schamotta, chief market strategist at Corpay, said in an interview with BNN Bloomberg Wednesday that there has been a “massive change just over the past 24 hours” in the perceived trajectory of interest rates set by both the U.S. Federal Reserve and the Bank of Canada.
“Essentially, markets moved to put the Bank of Canada and the Fed on close alignment through June (and) July next year. So both central banks are expected now to cut twice by June next year. And the Fed is expected to outpace the Bank of Canada toward the end of 2024,” he said.
“So they're expected to deliver four interest rate cuts against the Bank of Canada's three. That's actually helping to lift the Canadian dollar.”
Schamotta said the recent developments will help the Canadian dollar “both on the rate differential side,” and also from the fact that lower global borrowing costs will ease pressure on “Canada’s exorbitantly over-leveraged private sector.”
“We have households and businesses which fundamentally rely on the price of global money. When that price falls that actually does help to brighten the outlook a little bit, at least for Canada,” he said.
On Tuesday, U.S. inflation figures showed consumer prices rose 3.2 per cent in October, down from 3.7 per cent a month earlier and The Associated Press reported that most economists believe the Fed is done raising interest rates.
Schamotta said he believes the U.S. dollar was “very much overbought” ahead of the latest U.S. inflation report.
“We do think that economic data is going to continue to soften over the next couple of months with everything from labour market conditions to retail sales, beginning to sort of disappoint relative to expectations,” he said.
“That should mean that currencies outside of the U.S. dollar get a little bit of relief, we should see the Canadian dollar rally a bit on that. Not massively…we might see a couple of cents here.”