USDCAD is moving in the Descending channel and the market has fallen from the lower high area of the channel.
Bank of Canada is expected to Hold rates, Unemployment at 5% and Inflation at 5.2% So Pausing rate cycle can continue in this meeting.
Strong Economy and Employment Growth
The Bank of Canada is expected to hold interest rates steady during its Wednesday meeting, acknowledging the unforeseen economic strength in recent months. The Bank made history by becoming the first significant central bank to halt its rate-hiking campaign after raising its benchmark rate to a 15-year high of 4.50% last month. The Bank declared that if the economy slows down or experiences a minor recession, no further tightening would be necessary. Despite a recent decrease in inflation, other economic data points to a recovering economy after a weak fourth quarter.
EURCAD is moving in an Ascending channel and the market has reached the higher low area of the triangle pattern
Preliminary figures indicate that the gross domestic product (GDP) increased by 0.3% month over month in February, following a stronger-than-anticipated 0.5% increase in January. March’s employment statistics revealed a seventh consecutive month of job growth. According to James Orlando, a senior economist at TD Economics, the economy is gaining strength as more people work and experience salary increases.
Due to February’s unexpectedly strong numbers, analysts have revised their GDP predictions upward. The median first-quarter growth estimate is 2.5%, significantly higher than the Bank of Canada’s forecast of 0.5%. Orlando says, We still anticipate a hold from the Bank of Canada. They will undoubtedly be worried about the uptick in economic activity, but we believe they are still optimistic about a slowdown over the course of 2023.
Bank of Canada Governor’s Dilemma
Bank of Canada Governor Tiff Macklem is in a difficult position, as the stronger economy could call into question his decision to declare a conditional rate halt in January. After facing criticism for moving too slowly to control inflation, which surged after the pandemic restrictions were lifted, Macklem is trying to regain public confidence. The central bank has admitted to initially miscalculating price pressures, and the current budget presented by Prime Minister Justin Trudeau, which includes billions in new spending, may further complicate matters.
GBPCAD is moving in the Descending channel and the market has rebounded from the lower low area of the channel.
Investors argue that the full effects of increasing borrowing costs have not yet been felt. Additionally, recent stress in the global banking system has increased investor concerns about a credit crunch, which could affect the US as well. 75% of Canada’s exports go to its southern neighbor. According to Andrew Grantham, a senior economist at CIBC Capital Markets, growth is driven largely by an easing of prior supply constraints rather than a significant strengthening in domestic demand. Economists suggest that Canada’s potential growth rate may be increased by rapid population growth and fewer supply chain disruptions.
Nathan Janzen, assistant chief economist at Royal Bank of Canada, argues that while Canada’s economy faces challenges from rising borrowing costs and concerns about the banking system, inflation has decreased more than in the US. Thus, there are still solid justifications for the Bank of Canada to maintain its current wait-and-see policy.
Decision and Inflation Outlook
The Bank of Canada’s decision to halt rate increases is conditional, and the bank may take further action if evidence indicates that inflation is not slowing down. While Consumer Price Index (CPI) inflation reached an annual high of 8.1% in June last year, it was still more than twice the central bank’s 2-percent target in February at 5.2%. By mid-year, central bank experts predict that CPI inflation will decrease to about 3%. On Wednesday, the bank will release an updated quarterly projection for inflation and economic growth.
CADJPY is moving in an Ascending channel and the market has fallen from the higher high area of the channel.
Despite a majority of Bay Street analysts predicting that Canada will experience a mild recession this year, the Canadian economy has demonstrated remarkable resilience so far. Real GDP grew by 0.5% in January and increased by another 0.3% in February. Meanwhile, the unemployment rate remains close to a record low, and Canadian businesses continue to create jobs, generating an additional 35,000 positions in March.
Bank of Canada officials have suggested that higher unemployment will be necessary to bring inflation back down to 2% and that the current rate of wage growth is too rapid without a corresponding increase in labor productivity. Positive economic news isn’t really what we’re searching for in this chaotic environment,” says Avery Shenfeld, Canadian Imperial Bank of Commerce’s chief economist, in a note to clients.
BOC’s Surveys on Economic Turn
Last week’s quarterly business and consumer surveys from the Bank of Canada provided some hints that the economy might be about to change course. Businesses anticipate weaker sales in the coming year, and the business outlook continues to deteriorate. Consumers, on the other hand, reported reducing their spending intentions.
Crude is moving in the Descending channel and the market has rebounded from the lower low area of the channel.
The failure of Silicon Valley Bank and two other regional banks, along with the emergency sale of Credit Suisse to UBS Group, have heightened fears of further financial contagion. This has led to a precarious situation for central banks, as they must decide whether to continue raising rates to tackle excessive inflation or wait to tighten in order to prevent additional stress on the financial system. Last month, the US Federal Reserve, the European Central Bank, and the Bank of England all continued to raise interest rates while toning down their rhetoric about fighting inflation.
Despite recent concerns about a widening financial crisis, the market is still pricing in a lower peak for the Fed’s rate-hike campaign and multiple rate cuts before the end of the year. According to data from Refinitiv, interest-rate swaps, which represent market expectations about monetary policy actions, are pricing in two quarter-point rate cuts by the Bank of Canada by the end of 2023.
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