Bank of Canada Cuts Interest Rates: Kevin O'Leary Doesn't Think It Was a Mistake. Western C

On July 15, the Bank of Canada cut its key interest rate 25 basis points to 0.5%, with some commentary from Stephen Poloz that was less than cautious optimism. Kevin O'Leary of O'Leary Financial Group (and Shark Tank) also commented to BNN how this rate cut was a "big mistake", there are bigger problems and the cut won't have a big impact. On top of this dismal commentary, the USD-CAD exchange rate has been getting hammered (hammered assuming you want the CAD to have a higher valued relative to the USD) amidst both the BofC rate cut and some recent cautiously positive economic data from the US. However, while I apologize in advance to those people about to take vacations in the US, this is not all bad or, at least, there is a silver lining: Canadian oil and gas companies are paid for their commodities in USD (generally) at or pegged off of a global price. So, while WTI may have gone back down to flirt with $50 a barrel numbers, keep in mind that this is $50 USD our oil & gas companies are receiving; some might do better in Q3 and Q4 than the doom and gloom headlines would suggest. Either way, the massive drop in CAD value over a relatively short period of time (say 9 -12 months) illustrates the essential requirement of identifying the foreign exchange risk that could be inherent in a contract that spans months or years. For example: is a contractor's steel being shipped from India under a contract assigned to the contractor with payment in USD? If so and the exchange risk has not been expressly addressed, expect a dispute at a value of about 25% of the total cost of steel.


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