The Bank of Canada May Cut Interest Rates Soon

The Canadian dollar has weakened again following predictions of an interest rate cut in June. Additionally, it faces further pressure from U.S. economic data. Although the rapid decline in non-farm employment may prompt the Fed to consider cutting interest rates sooner, prolonged inflation remains a major concern at this time, adding to worries during the recent FOMC meeting. Moreover, there have been hints of potential additional interest rate hikes if inflation persists.

Canada's unemployment rate held steady at 6.1% in April, with the number of unemployed people rising by 17,100 from the previous month to 1,337,400. Meanwhile, youth unemployment surged, with an increase of 13,500, bringing the total to 398,000. Additionally, there was a net employment increase of 90,400, indicating a higher job turnover within the country, consistent with wage increases when moving to new jobs.

Foreign investors increased their investment in Canadian securities by a net $14.37 billion in March, after slowing down their investment in debt instruments the previous month. Currently, foreign investors are returning to invest in Canadian debt securities, with investments exceeding $17.9 billion, mostly in government bonds and private sector debt, which accounted for over $13.6 billion. There has been a slight slowdown in investment in Canadian equities.

Canada's inflation rate decreased to 2.7% in April, down from 2.9% in the previous month, aligning with market expectations and the Bank of Canada's forecast that inflation should be around 3% in the first half of the year, dropping below 2.5% in the second half. Additionally, the BoC has signaled that an interest rate cut might be imminent. A detailed look at inflation shows that food prices slowed to 2.3%, while transportation costs increased slightly due to rising oil prices.

The yield on 10-year Canadian government bonds fell to 3.6%, as the downward trend in inflation continues, further supporting the likelihood of an interest rate cut by the Bank of Canada in June. Furthermore, BoC Governor Tiff Macklem's testimony endorsed that the economy is conducive to an interest rate cut, with a 25 bps cut expected in June.

Techical analysis data (5H)

Resistance: 1.3728, 1.3743, 1.3752

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 1.3697 - 1.3705 but cannot break the support at 1.3705, you may set a TP at approximately 1.3743 and SL at around 1.3682 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 1.3728 - 1.3743, you may set a TP at approximately 1.3752 and SL at around 1.3697 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 1.3728 - 1.3743 but cannot break the resistance at 1.3728, you may set a TP at approximately 1.3697 and SL at around 1.3752 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 1.3697 - 1.3705, you may set a TP at approximately 1.3682 and SL at around 1.3743 or according to your acceptable risk.

Pivot point May 24, 2024 07:48 PM. GMT+7