BoC Survey: Q4 indicator hits record high of 5.99 as business sentiment in Canada improves again

The Bank of Canada's (BoC) Business Outlook Survey (BoS) for the fourth quarter revealed on Monday that the business sentiment in Canada improved again, with the BoS indicator coming in at a new record high of 5.99, up from 4.73 in the third quarter. Note that the data for the latest survey was collected prior to the rapid spread of the Omicron Covid-19 variant in Canada at the end of the quarter. 

Key points as summarised by Reuters:

• 77% of firms see labor shortages intensifying; broad-based demand for workers is putting upward pressure on wages.
• A broadening set of firms saw a solid recovery in sales supported by strengthening domestic and foreign demand. 
• Strong demand and bottlenecks in supply are expected to put upward pressure on prices over the next year.
• More firms reported impacts from labor shortages and supply chain disruptions, including continued drag on sales.
• In response to capacity pressures, most businesses set to increase investment and plan to raise wages to compete for workers.
• Firms expect some factors behind labor shortages may have a lasting impact, generating persistent tightness in labor markets.
• The balance of opinion on indicators of future sales growth rises to 57 in Q4 from 54 in Q3. 
• 67% of firms expect inflation to be above 3% over the next two years and most predict it will return close to target in 1-3 years.
• The separate BoC Q4 survey of consumer expectations says inflation is seen hitting a record high 4.89% over the next 12 months. 
• The separate BoC A4 survey of consumer expectations says people were more concerned about inflation now than before the pandemic and believe it has become more difficult to control. 

Market Reaction

The loonie seems to have seen some positive ticks in wake of the latest BOS, with USD/CAD now closer to 0.4% lower on the day and again looking to probe the 1.2500 level. The report was undeniably strong, but some might suggest out of date given the deterioration in the Canadian economy due to the rapid spread of Omicron. Whether this, as well as the fact that FX market volumes/liquidity are thin on Monday due to US market closures, is enough to hold USD/CAD above 1.2500 remains to be seen.