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McLean's market musings for Oct. 17

Blog by Nick Swinburne | October 17th, 2013

After 16 days of political bickering, the US debt ceiling crisis has come to an end, albeit a temporary one.   The new agreement will allow the government to end the shutdown and return to normal operations.   The new deadline for current government spending is January 15th, and the new debt ceiling deadline is February 7th.   Although the current agreement has calmed some worries, it looks like we may see a repeat in the new year as it is unlikely that either side of the debate will back down from their entrenched positions.

The present agreement has provided temporary relief to the various financial markets around the world but any optimism will be tempered by the prospect of another shutdown a short 3 months from now.

This new agreement drove the Canadian dollar up to $0.9723 this morning and this now seems like a good time for anyone looking to sell Canadian dollars.  Unless a more permanent agreement on the US debt ceiling is reached, the perceived US weakness will drive down the Canadian dollar in the next few months.  Those looking to buy Canadian dollars will likely be better off waiting for the next installment of political gridlock to begin.  Properly timing currency transactions during this period could result in savings of around 2%, and possibly more.

Bond yields, which drive fixed term mortgage rates, have continued downward for the past week but will likely increase over the next week.  The bond yields will increase on any potential talk of a more permanent debt ceiling agreement and will fall on news that makes another shutdown seem more likely.  These movements will be relatively small and should not cause any significant changes to interest rates. 

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Jason McLean BSc, AMP
The Mortgage Centre: Garibaldi Mortgage
fax: 604-905-3801
cell:  604-935-9190