Canadian Dollar Stabilizes as Household Wealth Increases

The Canadian dollar, denoted as CAD, is experiencing episodes of fortification against its US counterpart, the USD. Despite this, the USDCAD exchange rate predominantly exhibits lateral movements. There's a recurring trend where the Canadian currency displays periodic strength within this trading range.

Recent data from the Domestic Economic Sector (DES) shines light on the financial progression within Canadian households. In the last quarter of 2023, these households witnessed an influx in their net worth by approximately 1.8%, translating to 300 billion CAD. This positive economic stride helped to offset the depreciation noted in the preceding quarter.

Such an augmentation in wealth has been largely driven by positive financial market returns. Enhancements in the stock and bond markets have served as the vital components for this uplift, duly compensating for a slight deceleration in housing market values. By the close of 2023, Canadian households were collectively wealthier by 712.7 billion CAD compared to the previous year.

The realms of borrowing did not stay untouched, with Q4 experiencing a rise in borrowing rates for a second consecutive quarter. The total sum attracted by households amounted to 29.5 billion CAD, with mortgages forming the bulk followed by consumer lending. This juxtaposition of wealth increase and rising debt paints a contrasting picture of fiscal health where select households may have augmented their indebtedness disproportionately. Canada’s overall domestic loan debt teeters around 2.9 trillion CAD, with mortgages accounting for three-quarters of this debt. Nonetheless, when gauged against disposable income, the household debt percentage settled at 178.7% in Q4—an incremental decrease from Q3 and the lowest since the tail end of 2015—suggesting a stabilizing tendency.

Technical Outlook on USDCAD

The technical analysis of the USDCAD on the H4 timeframe indicates the formation of a descending wave targeting the 1.3403 mark. A correction to 1.3511 might occur after reaching this milestone, followed by an anticipated downturn to 1.3354. The bearish outlook is further corroborated by the MACD indicator's downward-trending signal line.

Shorter time-frame analysis, such as the H1 chart, shows completion of the initial structure of the fifth decline. There, a brief corrective upswing to 1.3488 is envisaged before a projected fallback to 1.3454. Testing the resistance at 1.3471 from below and then descending to 1.3420 is a sequence considered likely. This bearish forecast aligns with the stochastic oscillator signals, which suggest an impending downturn from overbought levels.

CAD, USDCAD, Economy