The Canadian dollar is in an interesting position at the moment.
Locally, it is clear that the real estate markets painful It will take at least a 200 basis point rate cut to fix this. But that is coming. The government is also very unpopular but change is coming there too, in 13 months at most.
Meanwhile, the question is how resilient consumers and businesses are. Today’s retail sales data shows that they are doing surprisingly well. Sales rose 0.9% in July, while the advance index rose 0.5% in August.
This suggests that while mortgage holders are struggling, those who have paid off their homes or have significant equity in their homes are continuing to spend. What makes this number hard to trust is that the RBC cardholder data has been deteriorating at a decent rate. Canada’s labour market has also been declining.
However, the market is taking it at face value for now, and the USD/CAD pair has fallen to 1.3546 from 1.3567.
There’s also the global growth picture to consider. The Fed’s 50 basis point rate cut on Wednesday is a great sign of a soft landing, and other central banks are also cutting rates. This could mean we’re in the early stages of a
As I am He said Reuters yesterday:
“The market is buying into soft landing expectations,” said Adam Patton, chief currency analyst at Forex Live, referring to a scenario in which inflation is tamed without a painful recession or a big rise in unemployment. “The dovish stance from the Fed is a major tailwind for global growth,” he added.
Ultimately, you have to be optimistic that the Canadian economy and global growth will hold up to be bullish on the Canadian dollar. I’m not in that camp but the picture has definitely improved this week between the Fed and the latest data.