By Ketki Saxena
Investing.com -- The Canadian Dollar strengthened against its U.S. counterpart today as the loonie continued to be supported by positive interest rate differentials between U.S. and Canadian yields, and gained further momentum from the day’s gains in crude.
The US dollar meanwhile weakened against a basket of major currencies ahead of a 75 basis point hike expected by the U.S. Federal Reserve on Wednesday, as investors weighed the impact of the rate hikes on an economy already teeters on the verge of a recession, further motivated by profit-taking following the dollar’s relentless rise to two decade highs.
The Canadian dollar also remained supported by the day’s gains in crude, which settled above $95/barrel today on worries of tight supply despite recession risks having been largely priced into the market already.
Oil prices rose today morning on worries of further tightening supply as the promised increased in Libyan output is expected to remain volatile, and as Russia remains unwilling to supply its benchmark Ural crude to countries that impose a price cap on its oil.
Forex Live also notes that“The loonie also continues to benefit from rate differentials. The Bank of Canada hiked 100 bps two weeks ago and its benchmark will be marginally above the Fed if the FOMC opts to hike 75 bps, as expected.”
In terms of what to watch next for the pair, the Fed’s move Wednesday will be the next defining event. At a technical level, FX daily warns that “the 200 hour MA remained elusive… the lows down to 1.28185 if broken would open the door for further selling. If that does not happen, we are back at the very beginning of the hold on Friday where the price had to "take back" the swing levels once again.”