Headlines in regards to how high inflation and rising interest rates will slow growth, and Canada’s GDP report last week reinforced the view that the momentum in the Canadian economy is not stopping. In February, GDP rose by 1.1%, the fastest advance since March 2021, above the market forecast of 0.8% amid the easing of Omicron-related restrictions. Improvements to the February print and a strong flash forecast for March point to 5.6% annualized growth for Q1. Compared to the others, Canada is clearly superior.
https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/
The BoC may no longer need to convince that a 50 bp hike is needed at its June 1 meeting. This has sent the Canadian 2-year and 10-year yields soaring last week and this week to reach 2.66% and 2.95%, respectively. With Canadian yields narrowing the gap relative to US Treasuries, the Loonie has appreciated more than half a percent.
Technical Overview
USDCAD has formed an Ascending Triangle pattern. The focus remains on the psychological 1.3000 level and the 38.2%FR level at 1.3022 from the withdrawal of the March 2020 peak and the May 2021 low. A sustained break of the 38.2%FR level would confirm that the downtrend from 1.4667 has been completed and the 1.206 long term support maintained. Further gains should be seen towards 50.0%FR at 1.3333 first, however rejection at 1.3022 would maintain the medium term bearish bias. A break of 1.2006 would continue the downtrend and carry more bearish implications.
The intraday bias is currently neutral after retreating from 1.2912. Some consolidation is seen, but further rally is expected as long as support holds. A move above 1.2912 would continue the rally to 1.3000 next. A decisive break there would carry even greater bullish implications. On the downside, in the short term the price is likely to test 2 price levels, namely 1.2717 and 1.2675, before attempting to move back to the upside. The oscillation is testing the critical level of the midline from the upside, and a bounce back from the midline would indicate the price of the asset is not yet expected to fall. Broadly speaking, the indications from the technical indicators are still dominant to the upside, however traders should watch out for the 1.3000 price range.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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