Canadian economy turned stronger than expected

The market expects the Bank of Canada to hold interest rates constant again at its next policy meeting on Wednesday evening and then decrease rates this year despite solid economic indicators. The Bank of Canada was the first major central bank to temporarily suspend restrictive monetary policy after the beginning of March. If the economy slows or enters a minor recession, the interest rate will remain at its highest level in 15 years, at 4.50%.

Despite the fact that inflation has slowed in recent months, other economic indicators indicated a recovery in the fourth quarter. According to preliminary figures released last week, the GDP increased 0.3% month on month in February, up from +0.5% in January. For the seventh month in a row, March employment figures rose, causing experts to raise their first-quarter GDP projections to 2.5%, up from the Bank of Canada's initial 0.5% forecast.

The Bank of Canada forecasts 2.25 percent average growth in 2023 and 2024, owing to a rapidly growing population and the resolution of supply chain issues. Previously, the Canadian economy faced rising borrowing costs and financial stability concerns, while inflation was getting lower than in the United States.

Canadian economic activity expanded quicker in March due to increased employment and inventories. The Ivey Purchasing Managers' Index (PMI) increased to 58.2 from 51.6 in February, while the employment index increased to 60.3 from 59.4 in February and the inventory index increased to 54.5, the most since October at 53.7.

The latest US dollar currency pairs fell on Tuesday after gaining on Monday due to anxiety over the Federal Reserve's hikes in interest rates.

The markets continue to expect the Fed to hike interest rates by 25 basis points in May. The reference swap contract showed a revised price on the day of the Fed's meeting, indicating that there is a more than 80% chance that the Federal Reserve will raise the policy rate range to 5%-5.25% on May 3, and a rate cut or reduction of at least 25 basis points twice after May is expected by the end of the year. The market will be watching the US CPI report on Wednesday evening. It is expected to ease down to 5.2% in March from 6% in February. Meanwhile, Federal Reserve officials expect inflation to decrease to 3.75% this year and reach a 2% target by 2025, while the unemployment rate is predicted to gradually rise from 3.5% to between 4% and 4.5%.

So far, the Bank of Canada may take the lead this time by halting interest rate hikes in order to regain public trust after being chastised for being slow to control inflation and admitting that it misjudged pricing pressures resulting in the inflation skyrocketing after the withdrawal of the COVID-19 measures, and though the Canadian dollar is expected to decline against the US dollar, but if overall Canadian economic activity continues in this manner, and the Canadian government prepares to release a new budget or fiscal policy, the BoC may modify its forecast and revert to tight monetary policy, resulting in the Canadian currency gaining in the future.

Data for Technical Analysis (5H) CFD USD/CAD

Resistance : 1.3472, 1.3475, 1.3481

Support : 1.3462, 1.3459, 1.3453           

5H Outlook

Source: Investing.com                                     

Buy/Long 1 If the support at the price range 1.3457 - 1.3462 is touched, but the support at 1.3462 cannot be broken, the TP may be set around 1.3472 and the SL around 1.3454, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3472 - 1.3477, TP may be set around 1.3485 and SL around 1.3459, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3472 - 1.3477 is touched, but the resistance 1.3472 cannot be broken, the TP may be set around 1.3458 and the SL around 1.3480, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3457 - 1.3462, TP may be set around 1.3447 and SL around 1.3475, or up to the risk appetite.       

Pivot Points Apr 12, 2023 01:40AM GMT

Sources: Investing 1, Investing 2