The Loonie received temporary whiplash from two releases this morning. Aside from that, USD/CAD continues to trade in a tight intraday trading range.
The first report showed that Canadian household debt hit another record high in Q2 as demand for loans grew. The ratio of household credit-market debt to disposable income hit +163.4% between April and June, up from +161.8 in Q1. Governor Carney has been very vocal about the degree of household debt and how its amongst the biggest domestic risks to Canadian financial stability. Just look at the Canada’s mortgage market, potential overheating required the Government to implement tougher home loan rules.
Today’s sharp increase can be attributed to to three factors: the amount of credit market debt was revised higher under changes to methodology; disposable incomes were redefined, leading to a downward revision and the balance sheets belonging to non-profits were removed.
The second report,the Bank of Canada quarterly outlook survey implies that Canadian companies have pared back their sales expectations, investments and hiring plans amid slow global growth. This has allowed money markets to price in even smaller odds of a rate hike by the BoC by next May. The OIS market is pricing in an +18% chance of a +25bps rate hike, down from +34%. last week. In the short term, we can probably expect Governor Carney to maintain his mildly hawkish bias at next weeks policy meet. Canadian policy makers are not in any hurry to raise rates, however, with higher than estimated debt levels, the BoC cannot afford to keep rates too low for too long.
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