Due to the massive monetary expansion in the world economies since 2008, Canada also enjoyed the prosperity with the higher stock price, low unemployment rate, and nominal inflation. During these periods, we also witness the explosive rise of Canadian housing markets that spurs on the tremendous demand in the Canadian dollar. In a ten years span, the bank of Canada even managed to raise the interest rate to 1.75%. The best thing of all is the meager unemployment rate. It managed to go as low as 5.6%; the lowest since the 1990s.
But moving forward, Canada has been experiencing deep slow down on retail sales with a relatively low inflation rate in recent months. The retail sales data is in the slump since mid-2018, and it had gone negative last month. If the condition gets worse, Canada unemployment might spike up in the coming months, and it will lean towards more economic slowdown.
Another major data/indicator that the traders should pay attention is the housing index of Canada. The Canadian housing market had enjoyed an extraordinary boom for the past few years, thanks to the massive foreigners’ purchases. But lately, the data (Canada Housing Price Index) fails to make a new high for the past six months. If the number starts to fall, the turmoil in the housing market can bring negative ripple effect to the whole economy and the strength of the Canadian dollar.
So, it is very clear that official from the bank of Canada will be very careful about raising the further interest rate. Since inflation is on the low side as mentioned above, they may even consider lowering back the interest rate (or) introducing a monetary expansion mechanism.
From the technical analysis (TA) point of view, the Loonie (USD/CAD) is on the slight uptrend using 1.271 and 1.3 as swing support levels. Currently, the momentum is under the bullish influence as we had a strong bullish engulfing candle two weeks ago. If the bullish momentum is to continue, 1.357 will be a key level to watch. Overall, USD/CAD is in the healthy uptrend so far with the series of higher highs and higher lows.
On the flip side, if the price starts to break below the nearest swing support of 1.309, 1.285 could be the next strong supportive region.
The information provided here has been produced by third parties and does not reflect the opinion of AxiTrader. AxiTrader has reproduced the information without alteration or verification and does not represent that this material is accurate, current, or complete and it should not be relied upon as such. The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.
Soaring US yields trigger the wrecking ball effect as yields become a source of volatility for risk, rather than a source of support