Canadian stocks remained under pressure this week as concerns about the new trade war with the United States continued. The TSX Composite index retreated to a low of C$25,000, down by 3.45% from its highest point this year. So, what next for the blue-chip index as the Canadian dollar and bond yields plunged?
Canadian dollar and bond yields have slumped
The TSX Composite Index, which tracks the biggest Canadian stocks has pulled back as investors have remained jittery about the economy.
The Canadian dollar, popularly known as the loonie, has dropped to 1.4500 against the US dollar. It has moved to the lowest level since February 3, and is down by almost 10% from its highest level in 2024.
Canada’s bond yields have plunged, a sign that investors are moving from equites to the bond market. The ten-year government bond yield plunged to a low of 2.80%, down from the year-to-date high of 3.56%.
Similarly, the 5-year yield crashed to a low of 2.50%, down from the 2023 high of 4.45%, while the 30-year yield moved from a high of 4.04% to 3.07%, its lowest level since September 17.
The Canadian dollar and bond yields have plunged as concerns about the next actions by the Bank of Canada (BoC) remained. It has become one of the most dovish central banks in the developed world as it slashed interest rates in each meeting since June last year. It has moved them from 5% to 3%, and there are odds that it will continue with this trend.
The BoC is under pressure now that the Canadian economy is slowing and inflation has moved to below 2%. Also, it is staring at major risks now that the Trump administration has moved to impose more tariffs on the country.
Analysts expect that the Canadian economy will be affected, erasing many of the gains made in the fourth quarter when it surged.
Canadian stocks are falling
The TSX Composite index crashed by more than 1.55% on Monday after Trump confirmed that he would move on with his tariffs. These tariffs will be 25% on most imports and another 10% on energy products.
The main impact of these tariffs is that they will affect demand in the short term as consumers wait for a deal on trade.
Most companies in the TSX Composite index crashed. Celestica stock plunged by 12.9% on Monday, bringing the weekly loss to 21.16%. Celestica offers numerous products, mostly to countries like Thailand and Malaysia.
The other top laggards in the TSX Composite Index were companies like Veren, Nexgen Energy, Interfor, Vermillion Energy, and Baytex Energy. These energy companies plunged because Trump’s tariffs on Canadian energy will make it more expensive than those in the United States.
TSX Composite Index analysis
TSX chart by TradingView
The daily chart shows that the TSX Composite index has pulled back in the past few months. It has formed a double-top pattern at C$25,825. A double-top is one of the most popular bearish sign in the market.
The neckline of this pattern is at $24,255, its lowest level on December 20, the 23.6% Fibonacci Retracement level. It has moved below the 50-day Exponential Moving Average (EMA).
Also, the Relative Strength Index (RSI) and the MACD indicators have pointed downwards. Therefore, the TSX Composite will likely have a bearish breakdown, with the next target being at $24,256, the neckline and the 23.6% retracement point. More gains will be confirmed if it rises above the all-time high of $25,825.
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