Market Expects BoC to Hold High Rates Until 2023

According to a recent survey by the Bank of Canada (BoC) in the second quarter, market participants expect the central bank to maintain interest rates at the current 22-year high of 5.00% until the end of 2023. After that, the bank is anticipated to start cutting rates in March. The BoC previously stated that there was excess demand in the economy and raised its GDP forecast, while also extending the timeline for inflation to return to its 2% target.

In June, Canada's annual inflation rate decreased to 2.8% due to lower gasoline prices. However, food and mortgage interest costs remained high despite the 10 interest rate hikes in less than 18 months. The BoC's median forecast for annual inflation at the end of the year is 3.0%, up from the previous estimate of 2.7%. The bank expects inflation to hover around 3% over the next year before gradually reaching its target by mid-2025, six months later than initially anticipated.

Canadian retail sales in May underperformed expectations, and June is expected to show no change, pointing towards a slowdown in economic growth that might influence the BoC's decision to keep interest rates steady.

Canadian housing starts experienced a substantial 41% increase in June compared to the previous month, primarily driven by groundbreaking on multiple unit urban homes.

In the currency market, the dollar remained steady against its major counterparts as investors awaited guidance on monetary policy from central bank meetings. In July, U.S. consumer confidence reached a two-year high, supported by a tight labor market and decreasing inflation, which improved the outlook for the economy in the short term. However, while the U.S. economy showed resilience, but concerns about a potential recession persist among consumers following interest rate hikes from the U.S. Federal Reserve.

Given these factors, the forecast for the CAD is subject to potential fluctuations based on interest rate decisions. Investors are having their eyes on the Federal Reserve, European Central Bank (ECB), and Bank of Japan meetings this week for further insights into the monetary policy outlook. As a result, the Canadian dollar is anticipated to fluctuate within a specific range ahead of the meeting's resolution report, and displaying a slight weakness compared to the US dollar.

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

Resistance : 1.3186, 1.3190, 1.3198

Support : 1.3172, 1.3168, 1.3160       

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 1.3162 - 1.3172 is touched, but the support at 1.3172 cannot be broken, the TP may be set around 1.3191 and the SL around 1.3157, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3186 - 1.3196, TP may be set around 1.3210 and SL around 1.3167, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3186 - 1.3196 is touched, but the resistance 1.3186 cannot be broken, the TP may be set around 1.3172 and the SL around 1.3201, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3162 - 1.3172, TP may be set around 1.3156 and SL around 1.3191, or up to the risk appetite.       

Pivot Points Jul 26, 2023 02:40AM GMT

Sources: Investing 1, Investing 2