Canadian and U.S. Economic Activity Slows As Global Business Optimism Improves

In May, Canadian manufacturing activity slowed down further, extending a period of contraction for the sector, with declines in output, new orders, and purchasing activity, according to recent data. The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) dropped slightly to 49.3, marking its lowest level since January, remaining below the 50 threshold for the 13th consecutive month. This prolonged contraction is the longest since records began in October 2010. Manufacturers cited subdued market demand, uncertainty, and reluctance to commit to new business as contributing factors.

Despite the overall gloomy picture, there was some relief in cooling inflation, with input prices easing slightly. However, output prices remained relatively stable, indicating a more controlled inflation environment. This may offer reassurance to policymakers considering monetary policy adjustments.

The Bank of Canada is expected to cut interest rates by 25 basis points to 4.75% on June 5, according to a Reuters poll, with three more cuts anticipated this year. The decision comes amid a slower-than-expected economic expansion in the first quarter, with GDP growth falling short of forecasts. The latest economic indicators, including retail sales, further underscore the softness in growth and the potential impact of high interest rates on consumer spending. While there's a likelihood of a rebound in GDP in April, reflecting resumption in certain sectors like auto manufacturing, economists remain cautious about sustained growth.

The federal budget presented in April aimed to support economic conditions, potentially paving the way for interest rate cuts, according to Finance Minister Chrystia Freeland. However, the decision ultimately rests with the Bank of Canada, which has maintained a high-interest rate for nearly a year. The BoC will release its quarterly survey of business leaders and consumers on economic growth and inflation expectations in July, providing additional insights for decision-making.

Recent data indicating a gradual slowdown in the U.S. economy has put pressure on the dollar, pushing it to a three-week low. Weak readings in manufacturing and construction spending, along with sluggish GDP growth in the first quarter, suggest the Federal Reserve may consider interest rate cuts later this year. While global factory activity showed signs of recovery last month, the U.S. stood apart with continued weakness in output. Despite this, overall business sentiment remains improved globally, potentially delaying or prompting caution in central banks' decisions to cut interest rates. As a result, the Canadian dollar is expected to stabilize in a narrow range throughout this period, prior to the BoC's policy announcement, and may fall slightly due to the United States' economic situation, which remains stronger in the medium term.

Data for Technical Analysis (30Min) CFD USD/CAD

Resistance : 1.3667, 1.3671, 1.3678

Support : 1.3653, 1.3649, 1.3642

30Min Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 1.3653 - 1.3648 is touched, but the support at 1.3653 cannot be broken, the TP may be set around 1.3671 and the SL around 1.3651, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3667 - 1.3672, TP may be set around 1.3685 and SL around 1.3651, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3667 - 1.3672 is touched, but the resistance 1.3667 cannot be broken, the TP may be set around 1.3653 and the SL around 1.3674, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3653 - 1.3648, TP may be set around 1.3640 and SL around 1.3669, or up to the risk appetite.       

Pivot Points Jun 4, 2024 07:37AM GMT

Sources: Investing 1, Investing 2