ChartBrief 143 – Canada Hikes Again – What Does It Mean For The “CANZ”?

ChartBrief 143 – Canada Hikes Again – What Does It Mean For The “CANZ”?

The Bank of Canada hiked interest rates another 25bps to 1.00% today, surprising most.  As noted last time (following the July interest rate hike)  Canada’s housing market is running hot, and has all the hallmarks of a property price bubble.  We’ve looked at the Canadian property market valuations a number of times and there is a clear case of extreme overvaluation, in addition to high and rapidly rising property prices, household leverage metrics remain at stretched levels.  It makes for a fragile backdrop should interest rates rise rapidly and significantly, and today’s rate hike is a further step in that direction.

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We talked about this problem in the latest edition of the Weekly Macro Themes in regards to the "CANZ Economies" - this is Canda, Australia, and New Zealand.  All three economies have significantly overvalued housing markets (see the chart below) and as discussed in the report, all have stretched household leverage.  They also share other commonalities such as commodity sensitivity... and they all call their currencies 'dollar'.  I would say that if one of the CANZ economies runs into trouble there is a reasonable chance of contagion across the 3, although simultaneous problems are probably more likely than contagion as such.  Anyway, it is a risk to keep on the radar, and the leading indicators of stress such as interest rates, unemployment, and house prices should be kept front of mind.

The Bank of Canada has now hiked interest rates twice (25bps in September and July) to 1.00%

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The CANZ Economies - Canada, Australia, and New Zealand, share the common vulnerability of extreme overvaluation in their property markets.  They also all have high household leverage ratios.

CANZ Economies

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Article by Top Down Charts

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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.
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