USD/CAD has broken out of its 2024 range as the US dollar soars across the board. Previously, the pair had stalled three times right around 1.3540 but it's finally broken through in a 115 pip jump.
Oil is up 50 cents today so Canada is getting help on that front but natural gas continues to pluge and is down another 5.5% today to $1.67, which is nearing the pandemic lows (and 2016 lows before that).
The brewing problem for Canada is housing. The rapid turnaround in interest rates since October were a lifeline for Canadian mortgages but Canadian rates track US rates closely and Canadian benchmark 5-year rates are now back to late-November levels and up 50 bps from the lows.
If they stay higher for longer, it could chase out some springtime home buyers and put a fresh chill on the market. Moreover, Canada's broader economy isn't weathering high rates as well as the US. Prolonging high rates could lead to a rougher recession or -- if Canada cuts and the US keeps rates high -- open up wider rate differentials. That's something that could re calibrate USD/CAD higher and lead to a challenge of the 2023 highs near 1.3875.
The problem for the Bank of Canada is that Canadian jobs and inflation have been just as strong as in the US but with a much weaker broader economy. It's not at a stagflationary level yet but it's not in a good place. With today's moves, a cut in Canada now is no longer fully priced in for July, so a rough spring could extend through summer.
