Barclays Capital FX Strategy Research notes that concern about the Canadian housing market returned after Home Capital Group suffered heavy deposit withdrawals, requiring a CAD2bn credit line, stemming from an Ontario Securities Commission investigation into its failure to disclose malpractice in its mortgage brokerage network.
In that regard, Barclays argues that despite high levels of debt and quickly increasing prices, there are no signs of stress in the Canadian housing sector.
“We do not see a significant market-wide signal from the Home Capital saga, as it accounts for 1% of the residential mortgage market, and the issues do not appear to indicate a more broad subprime failure, but do suggest regulatory overview is healthy in Canada,” Barclays adds.
As such, Barclays argues that although the situation is likely company-specific, it is a reminder of the financial stability challenges at hand, and is likely to keep sentiment in CAD subdued over the near term.
In line with this view, Barclays maintains its view for a modest depreciation for CAD over the coming months targeting USD/CAD at 1.38 by end of September, and at 1.40 by the end of the year.
USD/CAD is trading circa 1.37 as of writing.
Source: Barclays Research
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