Canada's Economy Faces Challenges Despite Modest August Recovery

Canada's economy stalled in July, followed by a modest increase in August. The manufacturing sector's significant decline in July, the largest in over two years, contributed to the economic slowdown. The unexpected contraction in the second quarter and lower-than-forecast annualized growth added to the challenges. Despite money markets trimming the probability of a rate hike, concerns persist regarding the economy's overall performance.

In his inaugural address as Deputy Governor of the Bank of Canada, Nicolas Vincent expressed apprehensions about the nation's changing pricing dynamics amid robust consumer demand. Despite signs of normalization, the recovery has been sluggish, not reverting to pre-pandemic levels. Vincent is concerned that this slow progress may impede the bank's goal of maintaining low, stable, and predictable inflation. The Bank of Canada has kept a 5% interest rate while closely monitoring corporate pricing strategies in the face of a resurgence in inflation, which reached 4% in August. Vincent's concerns align with Prime Minister Trudeau's recent call for food price stabilization during a meeting with grocery executives.

The manufacturing sector in Canada deepened its downturn in September, reaching its lowest level since shortly after the start of the COVID-19 pandemic. Weak market demand weighed on production and new orders. Purchasing activity was reduced as companies focused on reducing excess inventory, providing some relief as cost pressures stabilized.

In the United States, job openings unexpectedly increased in August, indicating a still-tight labor market. Demand for workers in the professional and business services sector surged, potentially prompting the Federal Reserve to consider a rate hike. The Federal Reserve, despite holding rates steady the previous month, signaled a potential hike by the year's end.

Federal Reserve data reveals that Americans are sinking further into debt, with an increase in credit usage and extended payback periods. A Bankrate survey indicates that 60% of Americans have carried debt for over twelve months, with 47% carrying credit card debt from month to month. The Federal Reserve's rapid monetary tightening has made servicing personal debt more expensive, contributing to the struggle among consumers. High inflation levels are also pushing people to rely on credit cards.

U.S. Treasury Secretary Janet Yellen expressed optimism about the U.S. economy, noting a decline in short-term inflation and an "extremely strong" labor market. Despite the economy expanding above the non-inflationary growth rate, Yellen acknowledged an over-dependence on China in critical areas. She emphasized the need to de-risk some dependencies without completely disengaging from China. Yellen's visit to China in July underscores ongoing efforts to maintain open communication between the two countries.

Consequently, it is anticipated that the Canadian dollar will experience prolonged pressure compared to the US dollar over the medium to long term, even as it tends to fluctuate within a relatively narrow range in the short term.

Data for Technical Analysis (5H) CFD USD/CAD

Resistance : 1.3720, 1.3725, 1.3733

Support : 1.3704, 1.3699, 1.3691

5H Outlook

Source: Investing.com       

Buy/Long 1 If the support at the price range 1.3694 - 1.3704 is touched, but the support at 1.3704 cannot be broken, the TP may be set around 1.3721 and the SL around 1.3689, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3720 - 1.3730, TP may be set around 1.3738 and SL around 1.3699, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3720 - 1.3730 is touched, but the resistance 1.3720 cannot be broken, the TP may be set around 1.3700 and the SL around 1.3735, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3694 - 1.3704, TP may be set around 1.3682 and SL around 1.3725, or up to the risk appetite.       

Pivot Points Oct 04, 2023 02:35AM GMT

Sources: Investing 1, Investing 2