By Ketki Saxena
Investing.com – The Canadian dollar continued to rally against its US counterpart today, as investors sold off the greenback in droves, with US economic data today continuing to ratchet up expectations that the Federal Reserve is almost finished with its rate hike cycle.
The US producer price index declined substantially to 2.7% year over year in March, compared to a 4.9% year over year increase in February. Core PPI also proved tractable, falling to 3.4% year over year in March compared to 4.5% YoY in February.
Jobless claims also rose, which along with softening PPI had investors betting the US central bank has only one more 25 bps hike (in May) scheduled, before it begins to cut rates in the second half of the year.
This expectation was reinforced by the Fed’s March FOMC minutes, released yesterday. The minutes showed that several policymakers had considered a pause in the aftermath of the recent banking crisis.
The US data and minutes contributed to a generally upbeat tone, lifting equities and the risk sensitive Canadian dollar, while pressuring the safe-haven greenback.
“Everything really took off after that much weaker-than-expected U.S. PPI report,” noted Erik Bregar, director of FX & precious metals risk management at Silver Gold.
However, he also believes that part of today’s rally is due to “finally some throwing in of the towel from the speculative shorts.”
Speculators have raised their bearish bets on the Canadian dollar to the highest since January 2019, which analysts at Scotiabank (TSX:BNS) have noted made the Canadian currency vulnerable to a short squeeze.
It should be noted that the rally in the Canadian dollar came despite a fall in crude prices, as investors worried today’s US data indicated an incoming recession in the world’s largest consumer of crude.
On a technical level for the USD/CAD, analysts at Forex Live note, “Technically, the pair will soon run into a series of previous lows stretching from 1.3218 to 1.3273. If those don't break, it would reinforce a pattern of higher lows that's been ongoing for nearly two years.”
“ If that cracks, it would highlight and confirm a double top below 1.40 with a measured target of 1.26.”