August 2015 Newsletter

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    In This Issue:

  • Fx Market Insights
  • Are Your Foreign Exchange Transactions Secure?
  • Can the Canadian dollar push even lower?
  • A Roller Coaster for the Chinese Economy

Are Your Foreign Exchange Transactions Secure

Personalized Service Equals Profit and Savings
A Roller Coaster for the Chinese Economy

Although you may not trade in the Chinese Yuan, there is no question that the Chinese economy has a ripple effect that reaches all global corners, and the Canadian dollar is no exception. The world watches China closely as a key indicator of global growth, or lack there of.

Chinese markets went through major turmoil in the month of July, with the Shanghai Composite down nearly 15% for the month, and down twice that much if we go back to mid-June. That's roughly $4 trillion in market value wiped out. There is a reason the world is watching.

The basic point that analyst agree on is that China's growth is slowing. The most recent reports put GDP growth at a 7 percent annual rate, well below the 8 percent to 14 percent rate China has sustained for more than 20 years. But there's lots more in dispute.

The Chinese government does not hesitate to intervene, with the government increasing purchases of stocks, while the central bank injected cash into money markets and devalued the yuan by nearly 2% in a surprise move allowing the currency to fall to levels not seen since 2012 in an effort to make the country's exports more competitive and boost the economy amid lackluster growth.

However, bear markets are nothing new in China. The Shanghai Composite Index has experienced 10 bear markets in the last 25 years for a total of 188 months, according to Tom Lee of Fundstrat Global Advisors. That means China was in a bear market more than 60 percent of the time. So big swings in stocks are nothing new to China and, in the past, have not caused a collapse in U.S. stocks or the global markets.

Foreign Exchange Market Insights

Market Insights - August 2015 Recap

Will the Bank of Canada follow the Federal Reserve?

The Canadian Dollar has been on a roller coaster this year, and the month of July was no exception. From the month open, to month close, the Loonie weakened by almost 5 cents, touching new multi-year lows that we have not seen since 2004. The decline was driven by a combination of developments, as global economic concerns weighed on sentiment and commodity prices. The economic outlook for Canada continues to be impacted by energy prices and the potential for a prolonged global economic slowdown weighs heavy on Canada.

Economic uncertainty is never good for currency exchange rates. The Bank of Canada’s rate cut on July 15th and a shift to a dovish stance has introduced greater downside risk to the Loonie while leaving it increasingly vulnerable to oil price movement. Oil prices continue to be the greatest near term risk for the Canadian Dollar.

The dovish stance from the Bank of Canada presents further near term vulnerability, one that is likely to support further CAD weakness as the Federal Reserve looks to raise rates as early as September. On top of this, CAD technical data is overwhelmingly bearish with most major analysts anticipating further Canadian dollar weakness as we close out 2015. Hedging against foreign exchange loss for the remainder of the year should be a serious consideration for Canadian businesses.