News Releases

Political Uncertainty Hurting Canadian Dollar, Says BMO’s Chicago-Based Global Foreign Exchange Strategist

The current uncertainty surrounding the Canadian political situation is having an adverse effect on the value of the Canadian dollar and foreign investment in Canada, according to Andrew Busch, Chicago-based Global Foreign Exchange Strategist, BMO Nesbitt Burns.

Busch made the comment during a breakfast speech to the Economic Club of Toronto today.

“If you don’t know what’s happening in a country, how can you invest there?” remarked Busch. “This is a really exciting time to be in Canada – to have political ideas kicked around. But it’s not a good thing for the Canadian dollar or for Canadian financial markets.”

Busch noted that if the government falls, more uncertainty will be created since the federal budget, which includes the abolition of the foreign holdings limit for RRSPs, may not pass.

Busch also suggested that the Canadian dollar is likely to weaken against the U.S. dollar over the next several months irrespective of the political situation. He predicted several contributing factors:

· The spread between Canadian and U.S. short-end interest rates is expected to grow to at least 75 basis points by the end of the year, given that:

The Bank of Canada is expected to raise interest rates by 75 basis points by the end of the year; and
U.S. interest rates are expected to rise to 4 per cent, a further increase of 125 basis points, by the end of the year.

· The U.S. dollar’s recent depreciation has bottomed out; a decent rally is expected in the coming months.

This should be a welcome development, according to Busch. “You don’t want too strong of a currency, especially given recent declines in Canadian exports.”

Andy Busch is the Global Foreign Exchange Strategist for BMO Nesbitt Burns. Based in Chicago, he is a recognized expert on the world financial markets and how those markets are impacted by political events. His views appear in his daily newsletter, The Busch Update, which is read by both the White House and the U.S. Treasury. Mr. Busch consults with the U.S. Treasury on economic and market issues. He frequently appears in U.S. and Canadian media, including CNBC’s Closing Bell with Maria Bartiromo and CNN’s Money Gang and Moneyline. His daily commentary, the Busch Update, can be found online at http://corporate.bmo.com/cm/market/fxcom/busch/default.asp.

For a photo of the event, visit bmo.com.

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Andy Busch, Chicago-based Global Foreign Exchange Strategist, BMO Nesbitt Burns

Mark Adler, Chairman, Economic Club of Toronto and Andy Busch, Chicago-based Global Foreign Exchange Strategist, BMO Nesbitt Burns