By Ketki Saxena
Investing.com – The Canadian Dollar edged higher against its U.S. counterpart on Wednesday, gaining support from crude prices and continuing its momentum following the Bank of Canada’s hawkish hold last week.
Last week, the BoC kept rates on hold at a 22-year high of 5%, stating that it was too early to move to cutting rates. Following the BoC’s move, markets now expect a rate cut from the Canadian central bank in July at the earliest.
The U.S. dollar meanwhile retreated against a basket of currencies as yesterday’s hotter than expected U.S. CPI data did little to move the needle on rate-cut expectations from the Fed.
Traders are currently pricing in a 60% chance of a 25 basis point cut in June.
While the BoC is expected to begin rate cuts later than the Fed, analysts, such as those at RBC (TSX:RY), expect that Canadian economic weakness relative to economic robustness in the U.S. will lead to more, and more aggressive, rate cuts from the BoC relative to the Fed.
RBC expects four BoC rate cuts or 100 bps of easing in 2024 and another 100bp of cuts delivered in 2025. The Fed, meanwhile, is expected by RBC to deliver 75 bps of rate cuts in 2024 and another 50 bps in 2025. In the medium term, however, analysts expect downside pressure on the loonie.
Analysts at Monex Canada are amongst those who believe that there could be “Renewed loonie downside” as the Bank of Canada’s higher for longer stance, “in light of Canadian economic weakness”.
However, they note that “There is likely to be little new to trigger a renewed selloff for the time being, next week’s release of February’s inflation data posing the next major piece of event risk.”
On a technical level for the pair, analysts at FXStreet write, “Daily candles continue to get hung up on the pair’s 200-day SMA at 1.3478, and directional momentum remains limited despite a recent pattern of higher highs. A supply zone is priced in just above the 1.3400 handle.”