By Ketki Saxena
Investing.com -- The Canadian Dollar continued to decline against the greenback, as crude prices slid, and as investors remained sensitive to hawkishness from US Federal Reserve policymakers.
Fed Chairman Jerome Powell had little to say about monetary policy in his opening remarks at the Fed's statistics conference on Wednesday. However, comments from Federal Reserve officials in recent days reinforced the possibility of more rate hikes, causing a souring in risk sentiment, and supporting the US dollar against riskier currencies.
While the door remains open on further rate hikes from the Fed, the consensus is that the Bank of Canada has reached its terminal rate, and will begin cutting rates sooner than the Fed.
The resulting rise in interest yield differentials has also helped weaken the loonie against the USD.
Analysts at CIBC (TSX:CM) note, “Canada’s heightened interest rate sensitivity and the deterioration in domestic demand will result in the BoC trimming interest rates a quarter ahead of the Fed, likely starting in Q2 2024.”
“And a shallower path for USD depreciation next year on extended economic resilience leaves less room for loonie appreciation in H2 2024.”
“We’ve compounded our forecast for Loonie weakness given the divergence in economic activity that the Canadian economy has seen versus US resilience, and we now see USD/CAD peaking at 1.42 in early 2024. “
On a technical level for the pair, analysts at FXStreet write, “After seeing a technical bounce from the 50-day Simple Moving Average (SMA) near 1.3630 in confluence with a soft touch of the rising trendline from July’s low bids near 1.3100, the USD/CAD is set for a fresh challenge of 13-month highs at the 1.3900 handle. Multi-year highs remain locked behind 2022’s October peak of 1.3978.”