The Canadian economy and financial markets are currently shaped by significant developments in monetary policy, interest rates, and currency trends. Calls for a bold rate cut have emerged to boost confidence, while the Bank of Canada recently reduced its policy rate to 4.25% in response to easing inflation and slowing economic growth. In the housing sector, forecasts predict a recovery driven by falling interest rates, with home prices expected to rise into 2025. Additionally, the Canadian dollar is influenced by oil prices and interest rate differentials, while the USDCAD currency pair has gained bullish momentum, signaling the potential for further gains.
Former BoC Official Urges Bold 50 Basis Point Rate Cut to Boost Confidence
Former Bank of Canada Deputy Governor Paul Beaudry suggested that the Central Bank should cut interest rates by half a percentage point at its upcoming meeting on October 23. Beaudry believes there are strong reasons to lower borrowing costs to stimulate household and business confidence, especially as policymakers see positive trends in wage growth, inflation expectations, and corporate pricing. He emphasized the need for a swift move toward the neutral rate of 2.75% to support economic growth, especially with the current 4.25% rate weighing on activity. Beaudry also highlighted that while the Bank of Canada generally avoids surprising markets, it is prepared to act decisively if economic data warrants.
Bank of Canada Slashed Rates to 4.25% Amid Easing Inflation and Economic Slowdown
On September 4, the Bank of Canada reduced its policy interest rate by 25 basis points to 4.25%, reflecting easing inflationary pressures and a softening economy. Canada’s economy had grown by 2.1% in the second quarter, driven by government spending and business investment, though preliminary data indicated a slowdown in activity through June and July. Inflation had slowed to 2.5%, but high shelter costs remained a significant contributor. The Bank noted that while broad inflation was moderating, certain services continued to experience elevated prices. The rate cut aimed to balance these opposing inflationary forces and help restore price stability for Canadians.
Canadian Housing Market Poised for Rebound as Interest Rates Fall
A recent housing market forecast predicts a recovery in Canada’s sluggish real estate sector following recent interest rate cuts by the Bank of Canada. Despite a 1.1% decline in national home prices during the third quarter due to slow activity in the summer, demand began to recover in September. The report highlights that lower borrowing costs are expected to bring first-time buyers and investors back into the market, with prices likely to rise more quickly into 2025. National home prices are forecast to increase by 5.5% in the fourth quarter of 2024 compared to the same period last year.
From Oil to Interest Rates: Unveiling the Forces Driving the Canadian Dollar
The Canadian dollar (CAD) is influenced by several key factors, with commodity prices, particularly oil, being a major driver due to Canada’s status as the fourth-largest oil exporter globally. Higher oil prices typically strengthen the CAD, while lower prices weaken it. Interest rate differentials between Canada and the US also significantly affect the CAD; currently, the Bank of Canada’s rate is 4.25%, while the US Federal Reserve’s rate is 5.00%. These differences can attract or deter foreign investment. Additionally, economic data such as GDP growth, employment, and inflation, along with global risk sentiment and geopolitical events, further impact the currency’s movement.
USDCAD Builds Bullish Momentum with Potential Upside Target
Since rebounding from the 1.34186 support level, the USDCAD currency pair has gained upward momentum, breaking through key resistance.
Specifically, the formation of a non-failure swing reversal confirmed the bullish outlook for the USDCAD pair. The trough of 1.34186 dropped below the previous trough and subsquently the USDCAD surpassed the peak at 1.36466 hence uptrend.
Support for the upward movement is reinforced by the 20- and 50-period Exponential Moving Averages (EMA), with prices currently trading above both levels. Additionally, the Relative Strength Index (RSI) remains above the 50 baseline, suggesting continued bullish momentum. The Momentum Oscillator is also positioned above the 100 baseline, further signaling an upward bias. However, the 20-period EMA has yet to cross above the 50-period EMA, which could provide stronger confirmation of sustained bullish activity.
By applying support and resistance concepts and using the Fibonacci tool on the swing high of 1.36466 and the swing low of 1.34186, potential upside price targets are identified at 1.37875, 1.39457, and 1.40155.
Conclusion
In conclusion, the Canadian economy and financial markets are undergoing notable shifts driven by monetary policy adjustments and global economic factors, including the impact of geopolitical conflicts. Interest rate cuts have spurred optimism, with predictions of a housing market recovery and potential economic growth into 2025. The Canadian dollar remains influenced by oil prices, interest rate differentials, and global tensions, while the USDCAD currency pair exhibits bullish momentum, signaling further gains. As the Bank of Canada navigates these dynamics, its decisions will continue to shape both domestic and global economic trends in the coming months.