The Bank of Canada decided to cut interest rates again.

The Canadian dollar has continued to strengthen over the past week, supported by the influx of foreign currencies, primarily in investments in Canadian businesses, and reduced fears of a U.S. recession, which has led to a global recovery in risk assets. Additionally, rising oil prices, driven by a decline in U.S. inventories, have further supported Canadian exports.

If the U.S. Federal Reserve decides to cut interest rates in September, the Canadian dollar may strengthen further, despite the Bank of Canada having recently cut rates in June. Investors are predicting that the Bank of Canada will further reduce interest rates by 150 basis points (bps) within the next year to support the domestic economy and avoid a recession.

The Bank of Canada lowered interest rates by 25 bps to 4.5% in its July meeting, as expected by the market. This marked the second consecutive month of rate cuts. Policymakers at the Bank of Canada noted that excess supply in the Canadian economy would help slow inflation in the coming months, allowing the central bank to pursue more accommodative monetary policy. Additionally, the rate cuts have contributed to the slowdown in mortgage and housing rental costs, which are significant drivers of inflation.

The CFIB Business Barometer, a long-term index reflecting business performance expectations over the next 12 months, dropped to 55.4 in July, indicating long-term confidence in the domestic economy, particularly among small and growing businesses. The three sectors with the highest confidence are Arts and Recreation (71.8), Finance, Insurance, and Real Estate (60.6), and Transportation (60.2).

The yield on Canada's 10-year government bonds surged to 3.2%, following the recovery in U.S. bond yields, as investors saw reduced chances of a U.S. recession, increasing demand for riskier assets and driving a sell-off in lower-risk government bonds. However, the contraction in Canada's manufacturing sector, the sharpest in a year, remains a major concern for investors, contributing to increased inflation worries. Additionally, monthly GDP growth slowed to 0.1%, indicating a deceleration in Canada's economic growth.

Techical analysis data (5H)

Resistance: 1.3744, 1.3755, 1.3768

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 1.3707 - 1.372 but cannot break the support at 1.372, you may set a TP at approximately 1.3755 and SL at around 1.3697 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 1.3744 - 1.3755, you may set a TP at approximately 1.3768 and SL at around 1.3707 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 1.3744 - 1.3755 but cannot break the resistance at 1.3744, you may set a TP at approximately 1.3707 and SL at around 1.3768 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 1.3707 - 1.372, you may set a TP at approximately 1.3697 and SL at around 1.3755 or according to your acceptable risk.

Pivot point August 9, 2024 08:12 PM. GMT+7