Canadian dollar currency traders should take note of the Bank of Canada Business Outlook Survey that was released two days ago.
The Business Outlook Survey is a leading indicator of economic health that hints at future dovish or hawkish actions from the Bank of Canada (BOC).
The BOC increased its balance sheet dramatically as the coronavirus pandemic reached Canada, and the country’s currency — the Canadian dollar (CAD) — appreciated considerably. The price of oil is responsible for most of the Canadian dollar’s strength and this somehow offsets part of the appreciation. Yet, the Bank of Canada is at the lower boundary with its monetary policy, and any trimming of the asset buying should be viewed as bullish the CAD.
Continued Improvement in Canadian Business Sentiment
The survey was conducted in the second half of February and the first part of March. It revealed that business optimism is rising, mostly fueled by hopes of effective vaccines against the COVID-19 virus. However, the outlook remains challenging even though businesses’ sales have improved when compared with a year ago.
Growing demand has led many businesses to increase investment spending and upgrade their inflation expectations but BOC remains optimistic that future inflation levels will remain within the target range of 1%-3%.
Canadian consumers expect to increase their spending as the year progresses, mostly due to the gradual reopening of the economy. Recreational services and activities are expected to recover the most because they were the most affected during the pandemic.
The survey offers no real news for currency traders this time because it comes in line with expectations. All developed economies are at similar stages, with the United States in the most favourable position due to the large number of adults that have already received a vaccine.
In summary, business conditions have improved since the last part of 2020, and that is an encouraging sign for the period ahead. The BOC policies are as easy as they have ever been, yet the CAD has gained across the board due to a steady bullish trend on the oil price. If oil doesn’t ease significantly from $60, the BOC will have a hard time tapering its bond-buying purchases.