Canada Housing Starts Increased 6.9% m-o-m in August

Canada Housing Starts Increased 6.9% m-o-m in August
September 10, 2020

 

The USD/CAD pair declined yesterday despite the report of better-than-anticipated US JOLTS data. The US-China trade tensions and steady increase in COVID-19 infections in the US have turned the greenback weak. Notably, the strong Canadian housing starts data also fueled the USD/CAD pair’s downtrend. In the past 24 hours, the USD/CAD pair has declined from a high of 1.3260 to a low of 1.3156.

According to the Canadian Mortgage and Housing Corporation (CMHC), housing starts increased 6.9% m-o-m to 262,396 units in August, compared with 245,000 units in July, and surpassed economists’ estimates calling for a decline in starts to 222,000 units. The increase was primarily due to a surge in groundbreaking related to multi-family units.

Furthermore, the trend in housing starts stood at 213,144 units in August, an increase from 204,597 units in July.  Trend refers to the six-month moving average of the monthly Seasonally Adjusted Annual Rates (SAAR).

Commenting on data, Bob Dugan, CMHC’s chief economist, said, “The national trend in housing starts increased for a third consecutive month in August. Higher multi-family starts in Ontario, including Toronto, drove the national increase. We expect national starts to trend lower by the end of 2020 as a result of the negative impact of COVID-19 on economic and housing indicators.”

As anticipated, the Bank of Canada left the benchmark interest rate unaltered at 0.25%, a level it had held since March when COVID-19 related lockdowns sparked an economic crisis. Governor Tiff Macklem had stated in July that the interest rate would remain near-zero until the country’s economy recovers and inflation reaches the 2% target. Currently, consumer price inflation is almost zero, with energy and travel services facing considerable downward pricing pressure. Excluding the impact of volatile goods, core inflation is between 1.3% and 1.9%, mirroring economic weakness.

The country’s economy shrank by 11.5% in 2Q 2020, in accordance with the central bank’s July Monetary Policy Report (MPR). In the first half of 2020, the country’s GDP has contracted by roughly 13%. With the reopening of the economy, there are hints of a faster-than-anticipated rebound in economic activity in 3Q 2020, aided by the government’s incentive schemes and wage subsidies. Primary funding markets continue to function without any hiccups, resulting in a decrease in the utilization of the central bank’s short-term liquidity program. The country’s monetary policy supports household spending and business investment by easing credit availability. Exports have started recovering but are still below the pre-pandemic February level.

In the US, according to the Bureau of Labor Statistics, the number of job openings rose to 6.62 million in July, an increase from 6 million in the earlier month. The reported figures were higher than the 6.05 million openings anticipated by economists.

While retail trade recorded an increase of 172,000 job openings, healthcare, and social assistance posted a rise of 146,000 vacancies. The construction sector saw an increase of 90,000 job openings.

However, the number of hires fell to 5.80 million in July. While hiring fell by 599,000 in accommodation and food services, healthcare and social assistance saw the hiring decrease by 137,000. Federal government hiring rose by +33,000, mainly due to Census hiring.

Layoffs and discharges declined by 274,000 to 1.70 million in July. Durable goods and manufacturing recorded a decrease in layoffs and discharges by 40,000.

The impressive Canadian housing starts and the US JOLTS data is expected to keep the USD/CAD pair range-bound with a slight bearish bias in the short-term.

Technically, the USD/CAD pair is declining after facing resistance at 1.3260. The next support is anticipated only near 1.3085. The currency pair is trading below its 50-day moving average, while the stochastics indicator is descending towards the bearish zone. Therefore, we are anticipating the currency pair to remain in a downtrend in the near-term.

CAD - technical analysis - 10th September 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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