Canadian stocks are in an upbeat tone ahead of the upcoming Bank of Canada (BoC) interest rate decision. The S&P/TSX Composite index, which tracks the top Canadian stocks, jumped to C$21,525 on Monday as it nears its all-time high (ATH) of C$22,207.
Bank of Canada decision ahead
The TSX Composite Index has joined other global indices in a spectacular rally in the past few months. Key indices like the Euro Stoxx 600, S&P 500, Nikkei 225, and DAX have all moved to their all-time highs.
The next important catalyst for the TSX index will be the upcoming BoC decision, which will likely set the tone for what to happen this year.
Economists expect that the bank will not tweak its interest rates this time. Instead, it will leave rates unchanged at 5.0% as it has done in the past five months.
The bank, will, however, hint that a rate cut will happen soon. Besides, there are signs that Canada’s inflation is moving in the right direction. The headline CPI moved to 2.9%, much lower than the pandemic high of 8.1%.
A rate cut will likely be a welcome thing as Canada battles slow economic growth. Data released last week showed that the economy avoided a recession narrowly in the fourth quarter. Higher rates for longer could make a recovery difficult.
The TSX Composite has also been helped by strong earnings by some of its top companies. Royal Bank of Canada (TSX:RY) (RBC), its biggest constituent, is nearing its all-time high after publishing strong results last week. Its adjusted profit jumped to $4 billion in the fourth quarter.
Other big players in the index like Toronto Dominion Bank (TSX:TD), Canadian Natural Resources (TSX:CNQ), and Bank of Montreal (TSX:BMO) have also released strong results.
TSX Composite Index forecast
TSX chart by TradingView
The S&P/TSX index has been in a strong uptrend. This rally accelerated after it moved above the crucial resistance point at C$20,845, its highest swing in February last year. This was an important move since it had struggled to move above that price several times between January and September last year.
The TSX Composite index is constantly being supported by the 50-day and 25-day Exponential Moving Averages (EMA). Further, the Stochastic Oscillator and the Relative Strength Index (RSI) have all pointed upwards.
Therefore, the path of the least resistance for Canadian stocks is bullish, with the next reference level to watch being at its all-time high of $22,204. This means that it could jump by about 3% in the coming days.