By Ketki Saxena
Investing.com -- The Canadian dollar strengthened against the greenback today, after touching a yearly low against the US dollar on Friday.
The loonie was supported by positive risk sentiment, and on US dollar profit-taking ahead of a decision from the US Federal Reserve on Wednesday.
The Fed is widely expected to keep interest rates on hold.
Despite the loonie’s gains today, analysts at Scotiabank (TSX:BNS) note that the upside for the Canadian dollar appears limited.
“The CAD has edged a little higher from Friday’s soft close but trends remain weak and scope for a rebound appear limited while rate differentials remain a major influence on spot. The only positive thing to note is that spreads have moved significantly and may have overshot.”
While both the Fed and the Bank of Canada are widely expected to keep rates on hold from here on out, traders are betting that the Fed will keep rates higher for longer - with a 25% chance there could be another 25 bps rate hike from the US Central Bank at the end of this year.
The Bank of Canada meanwhile, kept rates on hold at 5% last week. Earlier today, BoC Governor Tiff Macklem testified before the federal financial oversight committee, reiterating much of the rhetoric from recent minutes.
Macklem noted that inflation risks remain elevated, that the BoC does not see a recession on the horizon, and that it remains prepared to hike rates again if need be.
On a technical level for the USD/CAD pair, analysts at FXStreet note, “An extended recovery in the Loonie from here will see 1.3850 firming up into a significant technical resistance level moving forward. On the top side, a bullish break will see the USD/CAD set to challenge 2022’s high of 1.3978 set over one year ago, back in mid-October of last year.”
“In the meantime, a downside continuation will run into technical support from the 50-day Simple Moving Average (SMA), which is currently lifting north of the 1.3600 handle, with the last swing low pricing in an interim floor from 1.3569.”