Anthony Okolie talks with Scott Colbourne, Managing Director, Active Fixed Income, TD Asset Management, about the latest Bank of Canada rate decision and the outlook for the Canadian economy.
- Hello, and welcome to the MoneyTalk COVID-19 Daily Bulletin for Wednesday, June 3. I'm Anthony Okolie. In a few minutes, I'll be speaking with Scott Colbourne, Managing Director, Global Active Fixed Income at TD Asset Management about the latest Bank of Canada rate decision. But first, a quick wrap of today's headlines.
And we begin with that decision. The Bank of Canada kept interest rates unchanged at 0.25% on the first day of Governor Tiff Macklem's tenure. The central bank said the impact of the pandemic for the Canadian and global economy appears to have peaked, although uncertainty about how the recovery will unfold remains high.
Signs of life returning to the battered Canadian housing market. Home sales in Toronto, Vancouver, and Calgary rebounded in May after plunging in April because of the coronavirus lockdown. But sales are still down significantly when compared to last year. Toronto sales are down 54% and Vancouver, down 44%.
Australia's economy suffered its worst recession in nearly three decades, as the nation grappled with bushfires and the impact of the coronavirus pandemic.
And finally, as more people work from home and connect with friends online during the coronavirus lockdowns, videoconferencing platform Zoom is cashing in. Zoom's revenue the first quarter skyrocketed 169%, beating estimates by a wide margin. And that's a wrap of today's headlines.
Next, my conversation with Scott Colbourne. Scott, no surprise the Bank of Canada left interest rates unchanged as expected. But they did say that the impacts of COVID-19 may have peaked. Scott, what stood out for you?
- Yeah, I think people were expecting pretty much an unchanged-- no changes to the policy tools. But the language is a little bit more optimistic as you point out. COVID, the implications-- COVID has peaked. And now they're focusing on the recovery and the growth and employment.
And so I think that is really what the focus is. You could slightly characterize this as a little bit more optimistic. When they were looking at a range of scenarios in April, this scenario in terms of growth change was probably on the more optimistic of the pessimistic scenarios that they have put out there.
- When we look at the statement, the bank of Canada also suggested that the Canadian economy may have avoided the worst-case scenario when it comes to the impact of COVID-19. Where do you see the Canadian economy heading in the second half of this year?
- Yeah, when you step back and see how the markets have recovered, a lot of people are scratching their heads, whether it's equities, fixed income, currencies. And we've definitely seen the global economy start to reopen here. And we're seeing slightly more optimistic developments. From a very narrow economic point of view, there's certainly been a substantial human cost to all of this.
So I think that you're seeing evidence in the markets of a recovery and continues to play out. We're seeing a cyclical recovery here across a lot of asset classes. Obviously that plays into the Canadian economy. If we get a bit of a cyclical lift, you're seeing another sort of emerging market, a commodity-based countries out there-- Australia and New Zealand, Norway, Sweden-- all evidence of a cyclical recovery.
And so that plays into Canada's recovery here. And certainly being tied to the US economy as it recovers. And we seen before more evidence of opening up here that will play into support. But there's still a tremendous amount of uncertainty. And I think the Bank of Canada emphasized that today.
- And, of course, Tiff Macklem officially takes over as a Bank of Canada governor. Do you expect any changes in Bank of Canada's policy going forward?
- Yeah, I know Tiff took over. Well, he didn't take over for this meeting. He was an observer at this meeting. And so going forward, it takes a little while before a governor sets his tone. It took a while before Poloz tried to become anecdotal with his communication and describe monetary policy in a very familiar way and that described Poloz.
And that will take a little while for Tiff to get there. It's very collegial-- It's a group decision-making process. So it'll take a little while before we really see the imprint of Tiff Macklem in the markets at least.
- And we just have a few minutes. But I wanted to ask you about the Canadian dollar. Where did you see the loonie going over the next little while?
- Yeah, good question. I mean, the policy reaction, the impact, the biggest impact had at the end of March. And from the end of March until now, you've seen the US dollar on a broad aggregate basis decline. So I think more recently, you've seen Canadian dollar outperform against the US dollar.
But certainly it's playing a little bit of a catch up to a lot of that commodity of cyclical story I talked about, whether it's the Australian dollar, the New Zealand dollar, Norway, emerging market currencies. So Canada's playing a little bit of a pickup. And certainly as we continue to see this recovery play out, it leans into the strength in the Canadian dollar.
But this is a rally that's had a lot of legs, at least, in the Canadian dollar strength. So I think the problem with the pace of a gain is slowing a bit here. But net net, I think you're going to continue to see the Canadian dollar rally a little bit more as we continue to see the global economy recover a bit more here.
- Scott, thank you very much for your time.
- My pleasure. Thank you.