The economy of Canada has grown slightly.

The Canadian dollar continues to show a persistent trend of depreciation, driven by pressure from the US dollar. The US dollar is set to have a meeting today, along with the resurgence of inflation rates, as indicated in the latest announcement. Canada is considered a high-importing country, and the increased imports during periods of a weakened Canadian dollar have resulted in its largest trade deficit since November 2020.

Domestic currency outflows and pressure from rising inflation rates in Canada have prompted the Bank of Canada (BoC) to consider the necessity of another interest rate hike in September. While various economic indicators have not been very promising, managing inflation remains the most crucial concern at the moment. Nonetheless, if economic data turns out to be worse than expected, there might be a consideration to maintain interest rates instead.

The GDP growth forecast for the second quarter is a mere 0.1%. International trade constitutes approximately 45% of the GDP, with the United States being Canada's largest trading partner. However, reduced exports in contrast to significantly increased imports have limited GDP growth. Additionally, the current tensions surrounding the upcoming meeting and the costs from the previous interest rate hike contribute to the ongoing stress, both for Canada and the US.

House prices in Canada decreased by 0.1% on a monthly basis (MoM) in July. While construction costs in some areas have already seen reductions, the demand for housing and residential rental rates has also declined. Property developers have emphasized the weakened market conditions following the recent interest rate hike, and the anticipated impact has been considered.

Analysts predict that retail sales in Canada will increase by up to 0.4% from the previous month. Preliminary estimates suggest increased growth for automobiles and parts dealers, which experienced the most significant growth at 2.5% in the previous month. This aligns with the growing Purchasing Managers' Index (PMI) for the manufacturing sector, indicating a modest recovery in various manufacturing components, with the potential for more substantial growth next year.

The yield on Canada's 10-year government bonds has recovered to over 3.65%, rebounding after a slight decline. This value is close to the levels seen around 2010. Investors anticipate a 25 basis points increase in interest rates by the Bank of Canada (BoC) in September, supported by the increasing retail sales. It's important to note that raising interest rates will introduce additional costs and exert more downward pressure on government bond prices compared to before.

Techical analysis data (5H)

Resistance: 1.3595, 1.3610, 1.3618

Support: 1.3572, 1.3564, 1.3548

Source: Investing.com