By Ketki Saxena
Investing.com -- The Canadian dollar weakened against its US counterpart today on falling oil prices, and as Bank of Canada's meeting minutes showed that the central bank voiced considerations for the risk of overtightening policy.
The Bank of Canada's rhetoric has recently focused mostly on the danger of under-tightening and the risk of inflation becoming entrenched. However, the minutes from the July meeting released earlier today showed that Bank of Canada policymakers considered delaying the July rate hike as they "did not want to do more than they had to."
Ultimately, however, the Bank of Canada did decide to raise rates, noting that "the cost of delaying action was larger than the benefit of waiting". However, the commentary touching on the risk of overtightening adds further credence to the calls that the BoC may be finished hiking rates this policy tightening cycle - a headwind for the loonie.
The commodity-linked Canadian dollar was also pressured by falling crude prices, after data showed that U.S. crude inventories fell significantly less than expected - just a quarter of what had been forecast.
The US dollar meanwhile also weakened against a basket of currencies - although less so than the loonie - following a 25 bps hike from the US Federal Reserve and no clear commitments from the Fed that further rate hikes lie ahead.
Economists are largely predicting that this will be the last rate hike from the Fed, and that the cenbank will take a less hawkish stance going forward.
Looking ahead for the pair, Scotiabank (TSX:BNS) analysts "Anticipate the peak in the global tightening cycle will give risk appetite a broad lift in the months ahead, which should add to CAD tailwinds."
"We anticipate some modest improvement in the CAD versus the USD over the second half of the year and continue to target USD/CAD easing to 1.30 by year-end."
"An overshoot to the 1.28 area is not to be excluded as a risk in Q3."