By Ketki Saxena
Investing.com -- The Canadian dollar (CADUSD) reached a nine-month high against the US dollar on Thursday, fueled by surging oil prices and doubt amongst investors that the US Federal Reserve will truly raise interest rates twice more this year, despite the Fed's hawkish signaling. The US dollar fell against major currencies while Treasury yields dropped.
Skepticism about the economy's strength has led investors to doubt that the Federal Reserve can proceed with its planned interest rate hikes. This lack of confidence resulted in a sharp decline for the US dollar, allowing the Canadian counterpart to benefit from its weakness.
The loonie's ascent was also supported by recent data showing an increase in Canadian home sales. Sales rose by 5.1% in May compared to April, marking a recovery for Canada's housing market after experiencing a year-long slump.
In addition, rising oil prices contributed to gains in the Canadian currency as data revealed increased refinery activity in China - one of the world's top crude importers, boosting the demand forecast for the commodity.
On a technical level for the pair, analysts at FX Street note, "The low price in January was broken today, and the momentum has continued with the price reaching the 1.32299 level, but holding support against 1.3207 so far. On a break below, it would open the door for further selling with the 50% midpoint of the move up from the 2021 low the next key target. That level comes in at 1.3132."
"Conversely, if the buyers step in and hold support here, we could see a corrective move back toward the broken 38.2% retracement near 1.3331. A swing area between 1.3298 and 1.3320 is also near that level. That level should attract sellers on a rebound."
Looking ahead for the pair, however, analysts at BNP Paribas "remain cautious on the CAD in the near term"
"The CAD has outperformed the rest of the G10 complex on the back of a strong April CPI print and a beat in Q1 GDP, led by strong consumer expenditure, which caused additional Bank of Canada rate hikes to be priced in, followed by a 25bp rate hike in June".
However, as "the CAD is often used as a USD proxy, we expect it to underperform other G10 currencies during a medium-term USD decline", the analysts noted.