Bank of Canada May Already Be One and Done, TD's Cooper Says

(Bloomberg) -- Investors are pricing in two more interest rate hikes from the Bank of Canada this year but one may even be a stretch, according to the manager of C$355 billion ($273 billion) of assets for a unit of Toronto-Dominion Bank.

“I struggle to see a lot of engines to push the Canadian economy meaningfully faster,” Bruce Cooper, chief executive and chief investment officer at TD Asset Management, said in a phone interview. If the central bank does hike by the end of 2018, it will only be once, whereas the U.S. Federal Reserve will raise interest rates at least twice more this year and continue to do so in 2019.

“You will get that gap building up,” which will weigh on the currency, Cooper said.

Bank of Canada Governor Stephen Poloz heads into a rate decision Wednesday where he’s widely expected to refrain from lifting borrowing costs for the third meeting in a row. The bank has tightened policy three times since the middle of last year, pushing its benchmark rate to 1.25 percent.

For Cooper, a real-estate slowdown, uncertainty regarding trade and lack of investment in the oil industry are all factors that will keep the bank from increasing rates as quickly as the market anticipates.

Ontario Election

While just one out of 25 economists surveyed by Bloomberg expects Poloz to increase rates on Wednesday, overnight index swaps indicate there’s a 17 percent chance for a raise. The market expects two more hikes from the bank by the end of the year with the next one coming in July or September, and another in December.

The Canadian dollar fell 0.2 percent to C$1.3018 per U.S. dollar at 11:02 a.m. in Toronto, weakening for the sixth consecutive day and extending its quarter-to-date loss to 0.9 percent, still the best performance among major currencies tracked by Bloomberg.

That probably won’t last, according to Cooper, who also sees the provincial election in Ontario on June 7 as another factor to watch. A win for the Ontario New Democratic Party, which has risen in polls, wouldn’t be taken as a positive, he said.

“The NDP has stated that they would raise corporate taxes and that could have a negative impact on the way foreigners perceive Canada, which could have an impact on the currency,” he said.

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