By Ketki Saxena
Investing.com -- The Canadian dollar rose to a four week high against its US counterpart today, as investors bet on a rate hike from the Bank of Canada tomorrow. Money markets now see a roughly 45% chance that the Canadian central bank raising its benchmark rate on Wednesday. A hike is fully priced in by the next meeting in July.
The Canadian central bank has held rates at 4.50% since January, but economists now consider the likelihood of another rate hike to be high, after CPI data came in hotter than expected, and as the Canadian housing market heats up once again.
An unexpected rate hike from the Reserve Bank of Australia also boosted bets for a similar move from the BoC, as it begins to look increasingly like global central bank have not completed tightening cycles just yet.
"Focus on Wednesday's BoC policy decision is intensifying after the 'surprise' RBA hike earlier today," Shaun Osborne, chief currency strategist at Scotiabank (TSX:BNS) noted.
The loonie rose despite a decline in the price of oil, as worries of a cen-bank driven global slowdown outweighed optimism around output cuts from Saudi.
The US dollar meanwhile gained against a basket of currencies as investors weigh the likelihood of a rate hike from the Federal Reserve next week.
Looking ahead at a fundamental level for the pair, Scotiabank’s Osborne notes, "A rate hike tomorrow should give the CAD a modest lift, at the very least, the more so if the BoC does not shut the door on more tightening.”
On a technical level for the pair, analysts at DailyFX note that the pair is forming a “double top”.
“This bearish setup is confirmed once the price… breaks below the technical support created by the formation intermediate's trough – the neckline. In the case at hand, the neckline sits slightly above the psychological 1.3300 mark.”
“If the double top is validated, USD/CAD could suffer heavy losses, though this scenario may take time to unfold. Anyhow, the size of the potential downward move can be obtained by projecting vertically the height of the formation from the break point. For the pair, this could mean a slump toward 1.2960”