USD/CAD Daily
The Canadian dollar fell after the unemployment rate rose in June to 6.4% from 6.2%. The market had expected it to rise slightly to 6.3% but the economy lost 1,400 jobs in the month and signs of weakness have mounted.
That’s why the recent drop in USD/CAD could be a buying opportunity. The pair has been falling due to a generally weaker USD as the US economy has also shown signs of slowing down. Oil prices have also been rising for four straight weeks.
Technically, there is support at the 1.3600-1.3587 area, which represents the bottom of the May/July range. This provides an opportunity to reduce risk on a bet that Canada’s economy will deteriorate faster than the U.S. and that the Bank of Canada will cut interest rates faster and less.
The market is currently pricing in an additional 55bps of rate cuts this year from the Bank of Canada and a 50bps cut from the Fed. The key moment will come on July 24 when the BoC meets. The market is currently pricing in a 60% rate cut, which would be the second consecutive rate cut. I think that would also send a signal that rates will continue to be cut at every meeting, barring a surprise.
The housing sector has been a big part of Canada’s economy and GDP growth over the past decade. There were small signs of a recovery in the early spring, but those signs quickly reversed, and the inventory of unsold homes rose rapidly. There was hope that buyers would return at the first sign of interest rate cuts, but instead it was sellers looking for a way out, especially in newly built homes and condos.
This is somewhat offset by Canada’s impressive immigration rate (although there are signs that it is slowing down, and I expect the next election to focus on immigration policy).
On Wednesday, I spoke with BNNBloomberg about the difficulties facing the Canadian dollar and the situation elsewhere.
