The Bank of Canada began its interest rate cutting cycle this month and the question now is: How quickly can the cuts continue?
Governor Tiff Macklem said they make their decisions one meeting at a time and that it is reasonable to expect further interest rate cuts if inflation continues to decline.
Later today, we will have the minutes of the Bank of Canada's June meeting which could provide further evidence but for now, the market is anticipating a 64% chance of a BoC cut at the July 12 meeting and a 36% chance of holding. .
For the rest of the year, 57 basis points of additional cuts will be priced in.
USD/CAD fell by 9 pips today with the US holiday and the pair is trading at 1.3708.
I I spoke with Reuters This week around record short positions in the Canadian dollar.
Scotia today came out with a memo highlighting the risks surrounding the Canadian housing market:
“After experiencing a slight rebound earlier this year, Canadian home prices returned to decline in May, with used properties leading the decline. Furthermore, although May/June are typically the peak months of housing market activity, However, unit sales have only declined this year from their peak in January and at the same time, sellers have returned in a significant proportion… This is creating a market that for the first time in years is more favorable to buyers than to sellers… The new listing to listing ratio stands. Sales are at some of their highest levels in the pre-COVID era (preceding the financial crisis) while available inventory for months is also at its highest levels since 2019. Despite the overall negative tone swirling around the Canadian housing market, we point to two positive developments. First, the market is deeply divided between the recessionary markets of Ontario (housing prices -3.7% y/y) and British Columbia (housing prices -1.2%), while Quebec (+5.7% y/y) and the Prairies (+15%) are still % YoY) is in recession. Booming… Second, the latest interest rate cut by the Bank of Canada will likely only start to impact the market in July. In our view, expectations that the Bank of Canada is about to embark on a rate cut campaign may have kept some buyers on the sidelines until interest rates start to fall a bit. With another 75 basis points of cuts expected for 2024, the housing market could see much stronger interest from buyers in the second half of this year.
