Loonie 'caught in the crosshairs' amid shifting Fed rate cut expectations: TD Economics
BNN Bloomberg
Following the latest interest rate decision from the U.S. Federal Reserve, economists at TD Bank are predicting only one interest rate cut this year in the U.S. while adding the rate path could have implications for the loonie.
In a report Thursday, Beata Caranci, the chief economist and senior vice president at TD Economics, and James Orlando, a director and senior economist at TD Economics, examined the trajectory of interest rates and the impacts on currencies. On Wednesday the Fed held its key rate at a two-decade high of around 5.3 per cent while saying inflation has remained stubbornly high.
We have shifted our Federal Reserve call to only one rate cut this year due to the recent back-up of inflation that does not meet the Fed’s ‘confidence’ threshold to return inflation to two per cent in a timely manner,” the report said.
In contrast, the economists expect the Bank of Canada to bring interest rates lower in the summer. As borrowing costs are expected to move lower in other countries relative to the U.S., the economists said the U.S. dollar would have “no challenger” until material changes occur in economic dynamics or geopolitics.
