The BOC survey painted a realistic picture
Approximately half of Canadian companies anticipate a moderate recession within the next year, according to a survey conducted by the Bank of Canada (BOC). This, however, is less compared to the fourth quarter survey.
79% of businesses anticipate inflation to remain above 3% over the following two years, compared to 84% in the previous quarter. Comparing the fourth to the first quarter, the overall business sentiment decreased from 36% to 35%. 59% of firms surveyed anticipated that inflation would remain significantly higher than 2% until at least 2025.
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Firms continue to perceive the labor market as constrained, despite easing labor shortages and wage growth pressure. Firms anticipate a moderation in the magnitude and rate of output price growth.
This indicates that firms are progressively adopting more conventional pricing strategies. Although surveys were conducted before global banking stresses emerged in early March, evidence suggests business sentiment has not changed much since then.
A different BOC report on consumer expectations reveals that 20.3% of Canadians anticipate a significant economic downturn in the next 12 months, while 37.7% anticipate a minor downturn. Inflation expectations for the next year decreased to 6.03% compared to 7.18% in Q4. Inflation expectations for the next two years decreased to 4.27% from 5.18%.
“These surveys paint a picture of slowing growth, easing supply constraints, and moderating inflation expectations, albeit with none of those problems fully solved and back to pre-pandemic norms as yet,” said Andrew Grantham, a senior economist at CIBC Capital Markets.
The US dollar cannot keep up
The S&P Global Manufacturing PMI for March turned out 49.2, which was below expectations of 49.3. Later, the Institute of Supply Management (ISM) released the Manufacturing PMI, which plummeted to 46.3, below the anticipated 47.5 and February’s data.
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On the Canadian side, the S&P Global Manufacturing PMI dropped to 48.6 from 52.4, indicating a bleak economic outlook for the Canadian economy. As a result, the dollar lost some of its prior gains, which were also supported by rising crude prices. Since traders started counting on a less aggressive Fed, the USD/CAD declined from around 1.3500 to a daily low of 1.3424.
The bearish pressure continues
The USD/CAD extended its losses on Monday, and the bears are keeping up the pressure. The price is closing in on the 200-day average of 1.33751, which will act as support.
In the long term, the bears could push the pair even lower, as the breaking of the 200-day average would signal an even stronger sell. The next support could be 1.327 last seen in February.
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In case some events push the bears to cash in, the bulls could take action toward 1.385 in the long run. A short intraday correction may appear, as bears will start closing their trades.
USD/CAD 1D chart, source: tradingview.com, author’s analysis
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