By Ketki Saxena
Investing.com – The Canadian dollar edged higher against its US counterpart today, as well as most major currencies. The loonie was supported by road risk-on sentiment in equities as the S&P 500 hit an all time high, and expectations for a hawkish Bank of Canada next week.
Bank of Canada expectations have pared back significantly since the inflation print - a survey of economists by Reuters now show median expectations for the BoC to begin rate cuts in June. Markets had previously been expecting rate cuts from the BoC as early as March.
Analysts at ING note that the BoC is unlikely to “shift meaningfully in a dovish direction” next week, following last week’s hotter than expected domestic CPI reading.
In terms of the likely impact on the loonie, they expect the reaction to be “modestly positive as expectations of a radical dovish shift are scaled back.”
“USD/CAD may trace back to 1.34, but we don’t see much further downside for the pair this quarter as USD shows the last bits of strength.”
Meanwhile, the US dollar pared back against a basket of major currencies today as Michigan Consumer expectations data showed easing inflation expectations, keeping Treasury yields under check. Broad risk-on sentiment also saw traders gravitate to riskier currencies vs. the safe haven greenback.
However, today’s pull back does not indicate that the USD rally has peaked, analysts at Scotiabank (TSX:BNS) note.
“While the USD has drifted back a little, short– and medium-term trend dynamics remain USD-bullish.”
On a technical basis for the week ahead, they expect that the “ “USDCAD should find support on dips to the low/mid-1.34s next week.”
“Loss of channel support at 1.3430/40 would be a negative. Above 1.3540/50 targets additional USD gains to 1.3625.”