Canada's successful control of Inflation more than expected

In January of last year, the Bank of Canada (BoC) sent a signal by temporarily halting interest rate hikes, which had a significant impact on the housing market. This temporary pause in interest rate hikes led to a substantial increase in inflation and a resurgence of the housing market for the next five months.

Last week, the BoC made another adjustment, raising the interest rate to its highest level in 22 years, at 5.0%. Tiff Macklem, the Governor of the Bank, warned that the bank might raise interest rates further if necessary, depending on various economic data and developments. There is still room for further increases. The main factor to watch is the upward trend in housing prices, which could potentially stimulate inflation by up to 0.3% by the end of 2023. The recovering housing market has driven the average home sale prices up by 19% in the past two quarters.

Tiff Macklem also said that "The temporary interest rate pause in January was a reasonable measure. It was taken to assess the impact of the fastest interest rate increase in BoC's history. However, the economy performed better than the bank's projections, which necessitates another interest rate increase to prevent overheating of the market and ensure confidence in keeping inflation in check."

The decision to raise interest rates again can indeed play a role in reducing Canada's inflation rate. The Consumer Price Index (CPI) has decreased to just 2.8% in June, which is the lowest level in 27 months and below the 3% figure that economists had predicted. Despite a significant increase in housing occupancy rates, reaching 41% in June compared to the previous month, which is the highest in 10 years, it seems that the overall inflationary pressures have been relatively contained.

On the export front, oil remains one of Canada's crucial export commodities. The increase in oil exports by 2.2% to a price of 75.75 USD per barrel was influenced by reduced production in the United States, unexpected weakness in China's economy, and ongoing trade wars, all of which helped improve Canada's oil export situation.

Regarding the Canadian 10-year government bond yields (CA10YT=RR), they have decreased by 3.1 basis points to 3.370%, as inflation rates in the United States have been slowing down. There is an expectation that the US Federal Reserve might halt its interest rate hikes soon, and with global inflation trends also showing a tendency to decrease, many countries' bond yields have adjusted downward as well.

Techical analysis data (5H)

Resistance: 1.3174, 1.3182, 1.3188

Support: 1.3160, 1.3154, 1.3146

Source: Investing.com

Pivot Points June July 19, 2023 01:53 PM GMT+7