Investing.com – The Canadian Dollar posted a moderate decline vs its US counterpart on Friday, as risk-sentiment remained cautious after hotter than expected U.S. Producer Prices.
The US dollar meanwhile sending Treasury yields higher, fanning risk aversion, and further dampened hopes of early rate cuts from the U.S. Federal Reserve.
A slew of hawkish Fed speakers also helped damper hopes that the Fed will move to rate cuts soon, including Atlanta Fed President Raphael Bostic who commented that there was no urgency for the Fed to cut rates, given ongoing strength in the U.S. economy.
San Francisco Fed President Mary C. Daly also advocated for patience in rate cuts, also noting U.S. economic strength and that inflation needs more time to cool before the Fed will move to rate cuts.
Money markets now see a 70% chance that the Fed will not cut rates in May, and begin cutting rates only in June.
On a fundamental level for the pair, analysts at Scotiabank (TSX:BNS) note that U.S. vs Canada spreads, as well as risk-sentiment are now the key drivers for the pair.
Scotiabank analysts note that “A snappy advance in the CAD’s correlation with US/Canada spreads has emerged this week, with the yield differential moving unfavourably for the CAD. “
“Correlations highlight the influence of risk appetite on the CAD now.”
Next week for the pair, all eyes will be on the Canadian CPI release, due Tuesday.
The headline reading is forecast to tick lower to 3.3% from 3.4% in January, on an annualized basis. On a monthly basis, CPI is expected to jump to 0.4% in January compared to December’s -0.3% read.
Traders will also be looking into the Fed’s latest Meeting Minutes, due Wednesday, for hints on when rate cuts may begin.
On a technical level for the pair, Scotiabank analysts note that “The week ahead model suggests a potential trading range of 1.3379/1.3597 within a 75% confidence band which supports the idea that USD gains—for now, at least—above the mid-1.35 area may not stretch on too far or for too long.”