The Canadian economy is worse than expected from GDP contracting.

The Canadian dollar has weakened due to the stronger U.S. dollar in recent days, and there are also factors related to the Bank of Canada's (BoC) intention to maintain interest rates at 5% due to the fragile economic data, indicating no immediate rate cuts in the near future.

The weak economic conditions have had an impact on Canada's GDP growth, which contracted by 0.2% year-on-year (YoY) in the recent second quarter, lower than the expected expansion of 1.2%. This underscores that Canada's economy is entering a very challenging phase. Additionally, PMI data indicates a rapid decline in manufacturing activity in the country, the sharpest in three years. However, Canada has received some support from rising crude oil prices, leading to a slight increase in exports.

The Bank of Canada (BoC) has decided to keep interest rates at 5% in its recent meeting, in line with market expectations. This interest rate hold is considered temporary, and BoC has signaled that future rate decisions will depend on economic signals. Nevertheless, it is expected that BoC will maintain interest rates firmly due to the slowing growth in household credit and its impact on spending across sectors.

Canada has announced a trade deficit of only 0.99 billion Canadian dollars in July, which is significantly lower than the market's expectation of 3.65 billion Canadian dollars. Imports contracted by 5.4%, totaling 61.4 billion Canadian dollars, primarily due to reduced purchases of foreign gold, silver, platinum, and other metals. On the other hand, exports increased by 0.7%, amounting to 60.4 billion Canadian dollars, with the most significant improvements seen in aircraft and transportation equipment exports.

The yield on Canada's 10-year government bonds has risen to over 3.68%, aligning with the increasing yield on U.S. Treasury bonds, reflecting concerns in the market about a potential economic downturn. Additionally, the latest inflation rate has shown an upward adjustment, with a continued upward trend, partly driven by higher oil prices. This inflation rate remains above the target set at 2%, necessitating close monitoring and balancing by the Bank of Canada (BoC) to ensure a manageable balance between inflation and the economy.

Techical analysis data (5H)

Resistance: 1.3652, 1.3666, 1.3676

Support: 1.3628, 1.3618, 1.3605

Source: Investing.com