USD/CAD has broken out of its 2024 range as the US dollar soars across the board. Previously, the pair stalled around 1.3540 three times, but finally broke through with a 115-pip jump.
USDCAD daily
Oil is up 50 cents today, so Canada is getting some help on that front, but natural gas continues to hold up, dropping another 5.5% today to $1.67, near pandemic-era lows (and It is close to the previous low of 2016).
Canada’s biggest problem is housing. The rapid turnaround in interest rates since October has been a lifeline for Canadian mortgages, but Canadian rates are closely linked to U.S. rates, and Canada’s benchmark five-year rate is now back to where it was in late November. It has risen 50bps from the low.
If prices remain high for a long time, they could drive out spring homebuyers and have another negative impact on the market. Moreover, the Canadian economy as a whole has not weathered high interest rates as well as the United States. If high interest rates persist, the recession could deepen, or if Canada cuts rates and the U.S. maintains high rates, the gap could widen further. This could readjust USD/CAD higher and lead to a challenge to the 2023 highs around 1.3875.
The problem for the Bank of Canada is that while employment and inflation in Canada are doing just as well as in the United States, the overall economy is much weaker. Although we have not yet reached the level of stagflation, the situation is not good. Today’s move means that Canada’s July rate cut is no longer fully priced in, meaning the harsh spring conditions could continue into the summer.
