Today the confirmed the fears so expect Canadian rates to drop across the board (but I expect spreads to rise between safe paper and junk). It will be interesting to watch what happens to bank stocks over the next 12-18 months as the economy slows down. Will we see a credit crunch? How will this impact the Loonie versus the US dollar?
I am expecting trouble for Canadian banks as they are now dealing with a red hot housing market, the rout in , and now, rising consumer delinquencies. Most importantly, bank capital (equity) will likely get squeezed, which will put tension on bank balance sheets and their eagerness to extend credit. A policy for negative interest rates is already primed and ready in the Bank of Canada's toolbox. But luckily Canada doesn't have "reserve requirements" for banks ;)
***This is not investment advice and is simply an educational analysis of the market and/or pair. By reading this post you acknowledge that you will use the information here at YOUR OWN RISK