USDCAD is moving in an Ascending channel and the market has reached the higher high area of the channel.
Economists believe that the Bank of Canada will maintain its benchmark interest rate at its current level of 4.50% throughout the remainder of this year. They also believe that the bank will most likely adopt a hawkish tone on March 8 rather than a dovish tone because inflation is still a concern.
It appears that the Bank of Canada’s rate rises of 425 basis points over the past year are beginning to have an effect on the economy, as seen by a slowing housing market, sluggish company investment and consumer spending, and data predicting a halt to economic growth towards the end of 2022.
BOC Macklem on Inflation
While inflation is falling, Governor Tiff Macklem of the Bank of Canada has stated that the institution can now afford to wait and watch before taking any more action. But, Macklem has made it plain that a pause is reliant on supporting incoming statistics.
EURCAD is moving in an Ascending channel and the market has fallen from the higher high area of the channel.
In the meanwhile, inflation numbers for Canada are trending upward, which is a positive development. Although it came in far lower than anticipated in January at 5.9%, inflation remained significantly above than the goal rate of 2%.
The most recent figures on the gross domestic product, however, revealed that the economy is in a poorer shape than had been anticipated. The economy recorded no growth in the fourth quarter of last year, in contrast to the Bank of Canada’s own anticipation of a 1.3% increase. This might be in part owing to anticipation that the Canadian currency will decline in the coming months as a result of rate policy divergences between the U.S. Federal Reserve and the Bank of Canada, which would increase the risk of imported inflation caused by the exchange rate.
Housing Market Correction
Although the housing market downturn in Canada has not yet reached its conclusion, it is beginning to ease off gradually. We anticipate that the level of activity will gradually decrease over the spring. A few months later, prices will return to their previous level, assuming that the Bank of Canada has completed hiking interest rates. Our projections indicate that the national RPS House Price Index will fall by 15% from its high to its trough throughout the course of the whole cycle. Around half of it has not yet been delivered at this point.
The events that follow will be disappointing for housing bulls. We anticipate that the recovery phase will begin gradually later this year, despite the fact that affordability concerns and a slower economy will continue to discourage purchases. The pace should gradually build up beginning in 2024. Once the economy has recovered from the difficult patch it went through in 2024, inflation has returned to the target level, and the Bank of Canada has reversed some of the huge rate hikes it has imposed since March 2020. Concerns over affordability will be alleviated, but only gradually.
GBPCAD is moving in the Descending channel and the market has fallen from the lower high area of the channel.
This indicates that there will be a slow recovery from the severe decline in the affordability of housing that began in 2021. Buyers will continue to confront difficult obstacles, particularly in pricey locations like British Columbia and Ontario, where purchase costs have skyrocketed as a result of the epidemic. An immediate recovery of the market and a discernible loosening of the financial restrictions placed on purchasers will both be hampered by lingering affordability concerns. A cyclical event, the big swing in the market since March 2022, signifying the transition out of very unique conditions, a worldwide pandemic, and extraordinarily low-interest rates, the spectacular swing in the market occurred since March 2022.
The market is healthy from a structural point of view. Inventory levels are still at a record low, and there are no indications that there will be a glut of supply in nearly any place in the country. Over the course of the past year, the population of Canada has increased at a rate not seen in decades, and burgeoning immigration will ensure that this trend continues over the next several years. After the market has acclimated to increased interest rates, we predict that fundamentals that are rock solid will come to the forefront in the year 2024.
We anticipate that by the year 2025, our existing housing stock will need to expand by at least 270,000 units annually merely to meet the expansion in the number of households; this is before we even begin to address the affordability dilemma that exists in many Canadian cities. It goes without saying that beginning right now, residential construction must pick up the pace significantly. Yet, in the face of major labor shortages, it is uncertain if the construction sector has the capacity to do so.
CBDC and BOC Opportunities
While governments all around the globe investigate the potential of CBDC, the Bank of Canada is of the opinion that an offline CBDC would provide individuals with more alternatives for making payments outside of the online sphere. It was noted there have been a variety of improvements with internet payments, yet, offline payment methods have remained stable, with bank notes still being the only mode of payment. An offline CBDC, on the other hand, would make it possible for two users to do business even while neither of them is connected to the internet. It believes that this might eliminate friction between different payment methods and make it possible for monies to be spent online once access is restored.
CADJPY is moving in an Ascending channel and the market has rebounded from the higher low area of the channel.
In addition to this, the Bank of Canada feels that consumers would benefit from better accessibility, higher resilience, increased security, and increased privacy if the offline capability was made available. The Bank of Canada provided information on two distinct offline CBDC functionality options in a paper. These are sporadic and prolonged instances of being offline. In the first scenario, a payee would stake a claim on a part of the payor’s CBDC funds, preventing those amounts from being spent in the future.
The transaction will be finished as soon as either the payee or the payor is able to reestablish communication with the online system. The Bank of Canada, on the other hand, was fully aware that the offline CBDC was susceptible to manipulation by nefarious parties. The information indicated that they may attempt to raise funds without authorization, spend the same amounts twice, duplicate devices, or adjust limitations.
China-Canada Trade Record
According to figures compiled by Statistics Canada, the value of goods traded between Canada and China reached an all-time high in 2022, with imports surpassing $100 billion for the very first time. As demand increases and established supply networks reassert themselves in a globe that has been affected by a pandemic, economists and other experts believe that companies are seeing past the political issues that exist between the two nations.
AUDCAD is moving in the Falling Wedge pattern and the market has rebounded from the lower low area of the pattern.
In 2022, consumer products made up the largest category of imported items, accounting for $31 billion, followed by electronic and electrical equipment, which was valued at $28 billion. The figures reveal that Canadian exports to China also achieved an all-time high of $27.9 billion, recovering from a fall that followed the arrest of a Chinese executive from Huawei in 2018, as well as the incarceration of two Canadians by China.
Michael Spavor and Michael Kovrig China withdrew a three-year restriction on Canadian canola that had been imposed after Meng, who has since returned to China, was arrested. The restriction was lifted in the previous year, in 2018. Nonetheless, despite charges that China interfered in Canadian elections and confirmation from the Canadian government that Chinese monitoring activities were taking place, tensions between Ottawa and Beijing have not subsided.
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