Media Room
The week in the markets -
June 9, 2023
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Bank of Canada surprises with rate hike
- The Bank of Canada surprises with a hike in the overnight rate of 25 basis points to 4.75%.
- The loonie gains ahead of other central bank decisions on targeting inflation.
- U.S. Federal Reserve set to meet next week.
The market odds were split on whether the Bank of Canada would raise rates or remain with the status quo this week. Based on the tone of its official statement, the bank was firm on its decision to raise the overnight benchmark rate by 25 basis points. In our view, it also kept the door open for further potential increases.
“Monetary policy was not sufficiently restrictive to bring supply and demand into balance and return inflation sustainably to the 2% target,” the bank said. It cited an “accumulation of evidence” that included stronger-than-expected first quarter output growth, a slight uptick in inflation in April and a rebound in housing-market activity. It appears the bank harbours concerns about inflation potentially maintaining a stubborn hold in the 3.5% to 4% range. The decision to raise rates implies a willingness to accept a potentially slower economy, knowing it can always revert to rate cuts in the future, if needed.
The impact on Canadian consumers isn’t fully known yet, with nearly two-thirds of Canadian mortgages locked into lower-rate terms that will only mature in the next three to five years. Therefore, the full impact of higher rates on the Canadian consumer’s budget has not yet completely sunk in.
In the near term, we anticipate a rally in the Canadian dollar versus the U.S. dollar. While this is all well and good for Canadian travellers and makes imports more affordable, it presents a challenge for Canadian exporters. As our currency strengthens, our exports become less competitive internationally. Although a robust Canadian dollar isn’t typically beneficial for the Canadian economy, it does tend to put downward pressure on inflation, given the majority of our imports come from the United States.
Next week, we look forward to the U.S. Federal Reserve’s announcement, to see if it follows suit with a similarly hawkish approach, or if the Bank of Canada's move represents an effort to align more closely with the Fed's recent rake hikes and catch up with our southern neighbour.
For more insights, check out our podcast on “What to expect after an unexpected rate hike,” where we examine the potential impact of the rate increase on the economy.
This week's market closing value - week ending June 9, 2023
(As of 4:00 PM ET.*)
| EQUITY INDICES | Level | Change | 1-week | YTD | 1-year | 5-year |
| CAD | CAD | CAD | CAD | |||
| S&P/TSX | 19,877.11 | -130.85 | -0.65% | 2.61% | -3.34% | 4.17% |
| S&P 500 | 4,301.53 | 17.91 | -0.14% | 10.84% | 12.53% | 9.83% |
| DJIA | 33,877.04 | 114.28 | -0.22% | 0.76% | 10.34% | 6.68% |
| FTSE 100 | 7,562.36 | -44.92 | -0.11% | 4.10% | 7.04% | -0.94% |
| CAC 40 | 7,213.14 | -57.55 | -1.00% | 10.24% | 20.68% | 4.52% |
| DAX | 15,949.84 | -101.39 | -0.84% | 13.34% | 19.50% | 3.33% |
| Nikkei | 32,265.17 | 740.95 | 2.17% | 14.77% | 15.72% | 2.90% |
| Hang Seng | 19,389.95 | 440.01 | 1.73% | -3.79% | -6.69% | -8.33% |
| CURRENCY RETURNS | CAD | Change | 1-week | YTD | 1-year | 5-year |
|---|---|---|---|---|---|---|
| USD | 1.3348 | -0.0075 | -0.56% | -1.41% | 5.11% | 0.64% |
| Euro | 1.4343 | -0.0031 | -0.21% | -1.06% | 6.38% | -1.17% |
| Yen | 0.0096 | 0.0000 | -0.17% | -7.18% | 1.30% | -4.10% |
| CANADIAN TREASURIES | Yield | Change | COMMODITIES | USD | Change |
|---|---|---|---|---|---|
| 3-month | 4.77 | 0.15 | Oil | $70.28 | -$1.65 |
| 5-year | 3.69 | 0.19 | Gold | $1,960.63 | $11.74 |
| 10-year | 3.38 | 0.15 | Natural Gas | $2.27 | $0.08 |
| CANADIAN PRIME RATE |
|---|
| 6.95% |
*The data contained in the charts above is provided by Bloomberg as of 4:00 PM ET. Please note that the final closing market values may vary due to data delays and market settlement.
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