Housing Market Risk to Support USD/CAD in Second Quarter?
Despite the dovish language coming out of the Bank of Canada (BoC), Canadian Housing Starts are projected to increase an annualized 175.0K in April, which compares to the 156.8K print the month prior, and the ongoing threat of an asset-bubble may limit the central bank’s scope to reduce the benchmark interest rate from the current level even as Governor Stephen Poloz looks to achieve a ‘soft landing’ for the housing market.
At the same time, the economic docket is also expected to show the Canadian economy adding another 20.0K jobs in April, and the ongoing improvement in the labor market may continue to limit the downside risk for the Canadian dollar as it undermines the BoC’s scope to provide additional monetary support.
With that said, a material shift in the BoC’s policy outlook may curb the bullish forecast for the USD/CAD as the Federal Open Market Committee (FOMC) remains reluctant to move away from its highly accommodative policy stance.
CAD Unemployment Rate (APR) (Friday, May 9th at 12:30GMT / 08:30EDT)
The Canadian Dollar has gained strength over the past few weeks despite a massive breakout move to the upside at the start of the year. Although data in the fourth quarter of 2013 and early 2014 continued to disappoint market expectations, recent data has actually proved in line or above economists’ surveys.
In addition to USDollar weakness across the board, better data has halted a multi-year breakout on USD/CAD and the pair has remained in a range over the past few months. As with the U.K., it is important to note developments in the housing sector.
For one, the median home price to median wage in Canada has a ratio around nine while at the height of the U.S. bubble we saw a ratio of seven. Many Canadians, especially those in larger cities such as Vancouver, are beginning to be priced out of property while rents continue to rise. The developments in the housing sector over the coming months are likely to impact employment figures and any sign of weakening data will bode well for USD/CAD moving forward.
A disconcerting trend as of late has been inventory levels of home furnishing goods held by wholesalers. We’ve seen this figure spike as of late and this small data print may be an indication of a slowing property market. Building Permits on May 7th and Housing Starts on May 8th may provide more clarity as to whether this development is meaningful.
USD/CAD Weekly Chart
Source: FXCM Marketscope
David Song, Currency Analyst and Gregory Marks, DailyFX Research Team
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