The US dollar touched a five-month high against the loonie this week (shown below since late 2020, courtesy of my partner Cory Venable) as the Bank of Canada held at 4.5% and hawkish talk from the US Fed increased odds of a US overnight rate of 5% on March 22.

(Click on image to enlarge)

With recessionary data and credit stress compounding, the allure of a 5% risk-free rate in the world’s most liquid currency is understandably enticing global capital flows desperately seeking safe havens.

Canada’s 10-year Treasury yield topped with the loonie last October at 3.68% and has since retreated to 3.158% as Treasury bonds rallied. With Canada’s economy stalled out and financial stress spreading, the short-lived rebound from January through February is now in the rearview mirror, and a retest of the 2.80 area is next on deck.

With cash equivalents paying more than 4% and the highest grade bonds yielding interest payments and capital gains, the case for holding riskier assets is slim to none. David explains further in the segment below. Happy Friday.

David Rosenberg, founder and president of Rosenberg Research, joins BNN Bloomberg for his view on the markets as the BoC and the U.S. Fed divergence occurs. Rosenberg expects a recession in the upcoming quarters. He adds an earnings recession is underway, advising investors to stay away from the equities market and instead focus on a fixed income. Here is a direct video link.

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