By Ketki Saxena
Investing.com -- The Canadian dollar continued to hover near 12 month lows against its US counterpart, even as the US dollar index pared gains following the Fed’s monetary policy announcement and a press conference from Fed Chairman Jerome Powell.
At its monetary policy decision today, the Fed kept its fund target on hold at 5.25% to 5.50%, as had been widely expected by markets, but kept the door open to further rate hikes, with rhetoric largely similar to the September statement.
Markets are pricing in a roughly just under 20% chance of one more rate hike from the Fed before the end of the year.
The Bank of Canada, in contrast, has likely reached the peak of its rate hike cycle, and will begin cutting rates by Q2 next year, as the Canadian economy stalls.
Yesterday’s August GDP data shows that the Canadian economy has likely entered a “technical recession”, or two quarters of GDP contraction.
Karl Schamotta, chief market strategist with Corpay commented in an interview to BNNBloomberg, “What we do think is that those [Fed] rate expectations are going to come back down more profoundly, interest rate differentials will tilt more decisively against the Canadian dollar, and that should drag us down a couple more cents than where we are today”.
“If you’re a currency trader and you’re looking at the long-term picture for the Canadian economy, you have to assume that consumption and business investment is going to remain relatively low for not just a year or two, but potentially five or more years into the future”.
On a technical level for the pair, analysts at FX Street note, “On the daily candlesticks, the USD/CAD is firmly pinned into bull territory, trading into year-long highs and catching bullish bounces from the 21-day Exponential Moving Average (EMA).”
“The floor on bearish corrections will be at the 200-day SMA near 1.3500, with technical support from the 50-day SMA currently pushing upward to 1.3650.”