According to World Bank forecasts, the world economy will face a recession in 2023. Also, the interest rates in key countries will increase to an average of 4%. The market remains under pressure due to negative forecasts. Most of all, commodity assets, including oil, are losing in price. Nevertheless, so far in the confrontation with the JPY, the Canadian dollar is near its absolute maximum. Only in the last 7 days have we observed a downward movement. We do not exclude both a trend reversal and a normal price correction.
Investors ignore the safe but low-yielding yen to the last. Economic reports combined with extremely soft monetary policy do not contribute to this either. We are observing a rapid deterioration of the economic situation in Japan: industrial production volumes, as well as export volumes, are below forecasts. In June, industrial production output increased by 9.2%, and in July - by only 0.8%; the trade deficit is growing above forecasts. Therefore, if the yen is strengthening, it is because of being a safe asset.
The Canadian dollar is certainly more interesting for investors and in the event of an increase in oil prices, it may receive support. The Bank of Canada, which raised the rate by 75 pips at once, announced plans to continue tightening monetary policy in the future. The growth of inflation will certainly continue. As for oil, the prices of black gold are now at a minimum and have the potential to increase in the event of a weakening of the dollar or new restrictions against Russian crude oil and an escalation of the conflict. This will contribute to the growth of CAD.
We believe that the price correction will not last long. Next week, volatility will increase as the inflation report is published in both Canada and Japan. An increase in inflation above forecasts may increase the cost of CAD, strengthening expectations for a further increase in the interest rate. The stochastic oscillator shows us approaching the oversold zone and it means a high potential for consolidation and further growth soon. So In the current situation, we consider the deals to BUY to be the most effective.
