Jun 32 min read

Wednesday, June 5th, Bank Of Canada Interest Rate Decision

Bank Of Canada Interest Rate Decision

This information was from my daily "James Bond Yield Update" where I update you on bond yields and the effects they have on interest rates. With the Bank of Canada having an interest rate decision this week, I thought it was a good idea to share it here as well. You can find our daily updates on Instagram and Facebook at @triedandtruemortgages.

James Bond Yield Update: Bond Yields Preparing For Rate Decision 🤔 💭 💵

Candian bond yields. 3 year bond yield and 5 year bond yield. — Canadian Bond Yields

Bond yields are moving sideways to start the week. There will be some major volatility this week depending on what the Bank of Canada (BoC) decides to do on Wednesday at 9:45am.

2 scenarios could occur:

BoC cuts rate = bond yields fall

BoC holds rate = bond yields rise/remain steady

If you’re wondering what the bank of Canada will do on Wednesday look at my next slide. This chart could be the crystal ball into the future.

How can the Canadian dollar help us predict where interest will go?

Canadian dollar currency versus the American dollar currency. United States of America. — Canadian Currency Value

This chart shows the Canadian exchange rate with the United States dollar. When interest rates are similar between the countries, supply and demand dictate how the CAD/USD price fluctuates.

However, whenever there are interest rate decisions, we can see large fluctuations due to unequal central bank interest rates.

Why does this happen? See my example below.

Let’s imagine a bank has $100,000,000 (big banks) and wants to earn interest on their money. They put the money into a 5% savings account and earn $5,000,000 over the year.

Now imagine the country they’ve invested in lowered that 5% return to 4.75%, but another country (with a stable currency) still has 5%. What are they going to do?

They’re going to move the money. Why? Because if they don’t they’ll miss out on $250,000.

Any smart business/bank will do this.

But Alex, what does this have to do with the currency?

It has to do with the fact that you will now have large influxes (way more than $100mil) moving from Canada to the U.S., if Canada lowers their rate.

What does this do?

It reduces demand on the Canadian $ and increases demand on the American $ causing the CAD to devalue and the USD to become more valuable.

Why does this matter?

Because the weaker the Canadian dollar becomes, the more inflation we experience because business expenses increase due to importing raw materials and resources.

As a result, the Bank of Canada will be hesitant to lower rates if the United States doesn’t also.

Does this chart make sense now?

With that said, I’m predicting a 1% chance of a rate cut. Thanks for coming to my TED talk 👌🏼