Fed Rate Hike Shakes Up Canadian Markets

The U.S. Federal Reserve's first interest-rate increase since July 2023 has sent shockwaves through Canadian markets, particularly in terms of currency movements and cross-border business exposure.

While the Bank of Canada had kept its policy rate unchanged at 2.25% in September, the divergence between the two central banks matters due to interest rate differentials influencing currency movements, investment flows, and the relative attractiveness of Canadian assets.

Toronto-Dominion Bank (TSX: TD) offers an example of how having businesses in different countries can help manage changing interest rates. The bank reported a strong quarter, with record earnings in its Canadian and Wholesale Banking businesses, as well as its U.S. Banking business performing well.

CES Energy Solutions (TSX: CEU), on the other hand, shows why a weaker Canadian dollar is not automatically beneficial for every cross-border business. The company has significant exposure to the U.S. market and saw net income remain under pressure from higher foreign-exchange losses associated with the appreciation of the U.S. dollar.