USDCAD daily
The Canadian dollar has risen for the fourth day in a row, which looks impressive at first glance, but it masks an even steeper decline in the previous four days, hitting its worst levels since November.
Either way, it has risen for four days amid tough conditions for risk assets and oil. This is remarkable and highlights several factors that are driving it.
1) Federal budget
The government raised capital gains taxes, but there were concerns about corporate tax hikes and windfall taxes. That may have weighed on this madness previously and contributed to stronger rebounds.
2) The housing market is recovering.
My biggest concern for Canada this year was the housing market downturn in the spring and some types of uncontrolled housing breakdowns. In fact, it’s becoming increasingly clear that the housing market has either bottomed out (at least temporarily) or is starting to pick up. Home sales are picking up and some bidding wars have returned, reflecting a country with too many people and not enough housing. This has reduced the tail risk that the BOC will have to cut rates to combat the housing crisis.
Overall, I don’t think rebounds are particularly meaningful. The BOC is expected to cut rates more significantly than the Fed again this year, and final interest rates are also trending lower. As a result, the ongoing global soft landing and China upside risks could continue to favor CAD. However, I think it’s too early for that deal. I think a better deal would be to buy USD/CAD around 1.36 from here.
