Canadian stocks could get a boost from the US Federal Reserve’s decision to increase its bond purchases, according to Canadian stock market analysts.
The US Federal Open Market Committee (FOMC) will be making its monthly policy review on Monday, and its decision could be one of the most important of the year.
The central bank has been tightening its monetary policy since mid-2014, but this week it signaled its intent to increase interest rates in the next few months.
It is expected to do this again on Monday.
The move comes amid signs that the global economy is stabilising and that the Fed is getting more aggressive in raising rates.
With interest rates set to rise for the first time in more than six years, some investors are looking to buy US equities.
But others are looking for a safe haven from rising interest rates, with the Canadian dollar trading in favour of US bonds.
If you’re a Canadian investor, this might be the perfect time to get your hands on some Canadian stocks, and get the best price you can.
Canadian stock markets and interest rates The Canadian stock exchange (CSE) is the country’s biggest stock market, with about 70 per cent of the countryís wealth held in stocks.
The FOMC releases its monthly inflation report on Monday and is expected on Monday to confirm the central bankís decision to hike its bond holdings.
The committee is expected for several months to be more active than it has been in recent years.
The main thing investors need to consider is the yield on the benchmark 10-year Canadian bond, which is currently about 2.3 per cent.
A rate hike is expected after a meeting on Monday between the central bankers of the US and Canada, which the US is expected hold.
The Federal Reserve is expected at that meeting to increase the US rate to 1.5 per cent, and the Canadian central bank is expected later in the day to announce its decision to raise rates.
If the FOMCC does hold its meeting on a rate hike, it could be a sign that the economy is on track to return to normal, with an expected increase in economic growth and job creation.
If that happens, Canadian stock prices could see a boost.
A big increase in the yield is often a good indicator that the Canadian economy is doing well, and that there are other reasons for optimism.
“The Canadian dollar is in a much better position than other currencies, which are not in a great position,” says Ben MacGregor, head of market analysis at TD Securities.
“We have seen a lot of good news from Canada recently and it is an important time to look at our overall outlook for the economy.”
The US Dollar is on a run of recent strength, with both the US dollar index and the Dow Jones industrial average hitting record highs in September.
The Fed is also on a bull run, which means it is looking to raise interest rates as soon as possible.
But that can be dangerous if investors don’t understand what they are getting into.
“I would definitely caution people to be careful when it comes to the yield,” MacGregare says.
Why the US Dollar matters for Canadian stocks Canadian stocks are very heavily traded in the US, with a market capitalisation of US$7.7 trillion. “
It is a bit like buying an apartment with a view to buying a house, if you are looking at buying an investment.”
Why the US Dollar matters for Canadian stocks Canadian stocks are very heavily traded in the US, with a market capitalisation of US$7.7 trillion.
The currency is strong against many currencies, with it trading at around 80 per cent on average.
The Canadian dollar has been strong against the euro and the Japanese yen, and has helped boost Canadian stocks.
But the US economy is also seeing some positive news.
The dollar has gained 1.3 percentage points against the yen since the beginning of the month, while the UK pound has gained 0.4 percentage points.
“In the UK, the dollar is still quite strong, but the UK is in the midst of a recovery,” says John Gillett, senior economist at TD Bank.
“So we are seeing a very good performance out of the UK economy and I think we are in a good place for the dollar.”
The UK government is expecting a 2 per cent rise in the UKís gross domestic product for the year, which would be the best in more years.
But if the economy continues to grow at the pace of recent years, and if the US does not have a rate increase soon, Canada could see the US pound lose its value.
Canada is not alone in this situation, however.
The UK is also in a bad position.
The country has just over a quarter of its population in work, which has seen the population increase by 2.8 per cent in just over two years.
As a result, the country has more people employed than at any time in the past 50 years.
And as more people are out of work, the cost of living is rising, which