By Ketki Saxena
Investing.com -- The Canadian dollar took a hit and continued near a 3 week low against its US counterpart, driven by risk-off sentiment in equities, falling crude prices, and robust US economic data vs indicators that show a weakening in the Canadian economy.
In May, Canada reported a trade deficit amounting to C$3.44 billion. This was driven by declining exports in the energy and grains sectors while imports swelled due to unwrought precious metals and automotive vehicles. Experts had instead predicted a surplus of around C$1.15 billion.
This data points to a weakening in Canada's economy, which combined with yesterday's lower-than-anticipated manufacturing figures from Canada has raised investor bets that Bank of Canada (BoC) is nearing its terminal rate - in contrast with the Federal Reserve policies, which poses a headwind for the loonie.
A poll conducted by Reuters suggests that BoC is likely to increase interest rates by 0.25% at their second consecutive meeting set for July 12th to a terminal rate of 5%.
Meanwhile, the US dollar strengthened driven by rising bond yields following higher-than-expected ADP non form payrolls data, which along with the Fed's hawkish minutes from yesterday continues to stoke fears about further aggressive interest rate hikes by Federal Reserve.
The Employment Change report released recently showed new job additions tallying up at 497K in June within US economy; surpassing expectations set at 228K and marking improvement since last month’s 278K jobs added.
On a technical level for the pair, analysts at FX Street note, "The daily chart suggests that the USD/CAD’s outlook has turned neutral to bullish for the short term. In that sense, technical indicators are gaining ground, with the Relative Strength Index pointing north and jumping to positive territory and the Moving Average Convergence Divergence (MACD) printing green bars. However, the pair still has some work to do as it trades below the 100- and 200-day Simple Moving Averages (SMAs)."
"Resistance Levels to watch: 1.3380, 1.3390, 1.3340."
"Support Levels to watch: 1.3280, 1.3250 (20-day SMA), 1.3220."