Canada's Economy Grows Slower Than Expected, Rate Cut Likely in December

Canada's economy grew at a slower-than-expected pace in the third quarter, with a 1% annualized growth rate, falling short of the Bank of Canada's (BoC) forecast of 1.5%. This slower growth, coupled with weak business investments and exports, has increased the likelihood of a 50 basis point rate cut in December. While household and government spending supported growth, business investments, particularly in machinery and equipment, declined sharply by 27.7%. Despite this, retail sales and consumer spending showed signs of resilience, with retail sales rising by 0.4% in September.

The BoC has already lowered interest rates by 125 basis points since June, aiming to stimulate the economy. Analysts anticipate further rate cuts to ease restrictive policies, especially as inflation returns to target levels. However, concerns remain over external factors, such as potential US tariffs and trade uncertainty, which could suppress investment and impact Canada's growth prospects. The BoC’s decision on rates will be influenced by economic data, including the upcoming employment report and a revised fourth-quarter growth projection.

The U.S. dollar rose on Tuesday, bolstered by political turmoil in France coupled with China's economic struggles. Markets are awaiting U.S. employment data on Friday to refine predictions on potential Federal Reserve rate cuts, with expectations currently at a 50/50 chance.

Meanwhile, U.S. construction spending in October exceeded expectations, rising 0.4%, driven by increased investment in single-family homebuilding. Private construction spending grew by 0.7%, with residential construction jumping 1.5%, despite rising mortgage rates.

Typically, the dollar weakens in December as companies buy foreign currencies, but this year, concerns about President-elect Donald Trump's administration have kept the dollar firm, especially after his threat to impose tariffs unless BRICS nations accept the dollar as a reserve currency.

Federal Reserve officials, including Governor Christopher Waller and President John Williams, have signaled that a rate cut could be likely in December due to easing inflation pressures, although the decision depends on incoming data. As a result, it is expected that the Canadian dollar will continue to fluctuate within the current range and may move towards the upper range in the near term.

Data for Technical Analysis (1D) CFD USD/CAD

Resistance : 1.4079, 1.4104, 1.4144

Support : 1.3999, 1.3974, 1.3934

1D Outlook   

Source: TradingView

Buy/Long 1 If the support at the price range 1.3939 - 1.3999 is touched, but the support at 1.3999 cannot be broken, the TP may be set around 1.4094 and the SL around 1.3909, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.4079 - 1.4139, TP may be set around 1.4199 and SL around 1.3969, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.4079 - 1.4139 is touched, but the resistance 1.4079 cannot be broken, the TP may be set around 1.3989 and the SL around 1.4169, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3939 - 1.3999, TP may be set around 1.3884 and SL around 1.4109, or up to the risk appetite.       

Pivot Points Dec 3, 2024 06:38AM GMT