The Canadian dollar is trading in a tight range against its major G10 rivals, mainly due to mixed housing data. Investors are also looking forward to the statement from the Bank of Canada (BOC), which is scheduled to meet today to discuss monetary policy.
While the market is not expecting any change in interest rates, it is certainly looking for hints regarding a future course of action. In the past 24 hours, the USD/CAD pair declined from a high of 1.3145 to a low of 1.3072 and then reversed the trend to trade at 1.3130 levels.
According to Canada Mortgage and Housing Corporation, housing starts recorded its highest level in over a year in June, mainly due to the construction of condos and other kinds of multiple-family dwellings and row houses.
In yet another sign of reversal for the nation’s real estate industry, on an annualized basis, developers began working on 245,657 homes, up 25% from May, Canada Mortgage and Housing Corp. said Tuesday— comfortably surpassing the 208,600 homes forecast in a Bloomberg study.
CMHC also stated that multiple units starts grew 31% to 189,200. In a note to clients, Jocelyn Paquet, an economist at Montreal’s National Bank Financial, said growth was “evenly spread across the country.” He further highlighted that for the first time since 1996, growth was evenly spread in all ten provinces.
Rishi Sondhi, an economist at TD Bank, said new home construction in Canada has continued to hold up well, in contrast to the home resale market.
In a note to clients, Sondhi wrote “That said, starts are moving gradually lower on a trend basis, with the six-month average well off its near-term peak observed in late 2017. We anticipate some further moderation, as starts move closer to a more fundamentally supported level of around 200,000.”
However, the Canadian dollar was unable to gain considerably due to a decline in building permits. Statistics Canada reported that building permits fell 13% in May to $8.20 billion, compared with a 16% rise in April. Analysts had anticipated building permits to decline by 2.5%.
The market expects the BoC to leave the benchmark interest rates unchanged at 1.75% during the policy meeting to be conducted today. Notably, monetary policymakers have clearly stated that they will not alter interest rates at least until the federal elections get over in the fall of this year, benefiting the ruling liberals as the interest rates are at historic lows.
However, some analysts hope that BoC will respond to the 4% appreciation of the Canadian dollar against the greenback as the trend may gain momentum if the central bank postpones normalizing monetary policy. The country continues to suffer from all-time high household debt.
Therefore, further strengthening of the loonie is not a preferred scenario. Generally, BoC refrains from talking about the currency exchange rate. However, the central bank may attribute the loonie’s strength to solid growth. Finally, all policy decisions are dependent on macro-economic data, as BoC Governor Stephen Poloz has always maintained.
The mixed economic data is expected to keep the Canadian dollar range-bound in the short-term.
Technically, the USD/CAD pair has found support at 1.3060. The stochastic oscillator is in the bullish region. Furthermore, the currency pair is trading above its 50-day moving average. As a result, we can expect the USD/CAD pair to move up further.
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