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Summary: The latest data on Monday showed that the average price of Canadian resale homes has now risen for four consecutive months after the Bank of Canada's interest rate hike last year caused the average price to plummet.

Fundamentals

The Canadian Real Estate Association said Monday that the average sale price of homes sold on its MLS system in April was $716,000. This is the fourth consecutive monthly increase, marking a total increase of more than $100,000 since the beginning of the year.

After peaking at just over $816,000 in February 2022, Canada's housing market went ice cold for much of last year before the Bank of Canada began aggressively raising interest rates, as mortgage rates rose sharply making it more expensive to finance the purchase of a property.

While the average price bottomed out a few months later, slightly below $630,000 in July. But after moving essentially sideways until the start of 2023, the market has seemingly resumed its upward momentum ever since.

Much of the rebound stemmed from sales growth in the Greater Toronto Area and British Columbia's Lower Mainland, the two regions that rose the most in the early stages of COVID-19 and fell the most once rates rose.

Excluding data from these two markets, the national average home price fell by more than $144,000, with the average home price outside of Toronto or Vancouver at $572,000.

CREA, which represents more than 100,000 realtors nationwide, says the number of homes sold this month is up 11% from March's level and is now back to the highest level since last June. But it's still nearly 20% below the frenzied market of this time last year.

On the market side, home sales continue to rebound from the multi-decade lows observed earlier in the year. Support has come from solid job markets, lower interest rates, and improving buyer psychology from a central bank that's on pause. But affordability remains significantly strained and subdued supply is probably playing an even larger role in pushing prices higher.

The Canadian dollar has continued to strengthen in recent weeks, appreciating by nearly 5 cents relative to the U.S. dollar. The resilience of the Canadian economy and a less dovish Bank of Canada have led to a significant reduction in the U.S.-Canadian exchange rate spread since the collapse of Silicon Valley Bank.

The pair hit a one-month low of 1.3314 early last week and rebounded to the 1.3570 level over the weekend. From a technical point of view, there are few forces preventing the price from returning again to the heights set earlier this month at 1.3650-1.3670 or even the 1.3700-1.3730 range.

Looking ahead, we do not see the Canadian dollar benefiting from the spreads that continue to narrow in. Also, given the recent decline in commodity prices, we expect the USDCAD to remain in the 1.3300-1.3800 range over the next quarter.

Technical Analysis

USDCAD has been in a wide-range oscillation structure since hitting the 2023 high of 1.3862 in mid-March. Although the pair managed to rebound from the May lows and recaptured the 200-day SMA, the sharp price retreat that followed suggests that the tug-of-war between bulls and bears may soon undergo another significant adjustment.

Momentum indicators now suggest that short-term risks are still tilted to the downside, despite the recent rebound. Specifically, the RSI has rebounded but failed to break the neutral 50 level, while the MACD remains below the 0-axis even after making significant progress.

The recovery momentum is currently blocked at the 1.3570 handle. A break above this area could see the pair rise towards the April high of 1.3666; or higher, testing the robust psychological level of 1.3700 from December 2022. Any further gains could be halted at 1.3805.

On the other hand, if the price reverses lower and falls below the 200-day SMA, the April support level of 1.3400 could become the first line of defense. If that bottom collapses, the pair could fall to the May low of 1.3300 before testing the 2023 bottom of 1.3262.

Overall, although USDCAD has recently experienced a significant broad-range adjustment, technical indicators have not yet fully turned bullish. Therefore, the break of key support levels will determine the medium-term trend. For this, the main strategy is to be more inclined to buy the dips.

Trading Recommendations

Trading Direction: Long

Entry Price: 1.3420

Target Price: 1.3730

Stop Loss: 1.3260

Valid Until: 2022-05-29 23:55:00

Support: 1.3413, 1.3315, 1.3276

Resistance: 1.3570, 1.3614, 1.3668