By Ketki Saxena
Investing.com – The Canadian dollar rallied against its US counterpart today as risk-sentiment, also reflected in equities, got a boost from better than expected US jobs data, pressuring the safe haven greenback.
The greenback is also being pressured by anticipation that the US Federal Reserve will now pause its rate-hike cycle.
While it hiked rates by the expected 25 bps earlier this week, the Federal Reserve neglected to include the phrasing that has been consistently present in its guidance over the last year: that it “anticipates” further rate increases.
The Canadian dollar meanwhile was boosted by better than expected jobs data - with the economy adding 41,400 jobs - more than double the 20,000 new positions expected by economists.
Today’s data shows that the Canadian labour market is a long ways away from running out of steam - casting doubts on whether the Bank of Canada will remain on pause.
David Rosenberg, of Rosenberg research notes “The fact of the matter is that the labour market remains tight, wage growth is above where the Bank of Canada would like to see it from a ‘two per cent inflation target’ point of view, and all this means that the futures market is moving towards pricing in a summertime BoC rate hike.”
Analysts at Scotiabank (TSX:BNS) note that the expected differentials between BoC and Fed pricing are likely to provide a tailwind to the loonie.
““With the US swaps curve pricing in nearly 100bps of cuts, the CAD should be getting some more obvious support from yield spreads in the next few months, if market pricing is any guide”
Scotiabank analysts have also consistently noted that the CAD appears undervalued; this is a sentiment reflected in consensus by economists surveyed by Reuters.
The median forecast of nearly 40 currency analysts is for the CAD to reach 1.345 per U.S. dollar in three months compared to 1.350 in last month's forecast.
Jay Zhao-Murray, market analyst at Monex Canada, notes"Fundamentally, the Canadian dollar is still undervalued by any longer-term metric of fair value. That anchors my longer term view,”
On a technical level for the pair, analysts at Scotiabank note, “The USD is holding losses below 1.3520 short-term support (now resistance) which points to more weakness ahead and the breakdown from late Apr/early May range suggests losses could extend towards the low/ mid 1.34s in the next week or so.”