By Ketki Saxena
Investing.com -- The Canadian dollar rose to a four-month high against its U.S. counterpart today, driven by increasing oil prices and U.S. inflation data that suggests a potential pause in the Federal Reserve's interest rate hikes. The Canadian dollar was also supported by an uptick in risk sentiment on the CPI data, reflected in a rally in equities.
The commodity-linked loonie received a further boost from oil prices on growing fuel demand expectations after China's central bank lowered short-term lending rates for the first time in ten months. This move helped boost crude prices after significant losses from earlier sessions.
"The firmer risk backdrop has lent further support to CAD as the S&P 500 Index surpasses its highs from last August," said George Davis, chief technical strategist at RBC (TSX:RY) Capital Markets.
"This, along with a rebound in WTI crude oil prices and a lower print for today’s U.S. CPI data have undermined the USD and benefited CAD in the process."
On a technical level for the pair, analysts at FX Street note
"The USD/CAD shows a bearish bias in the short term, as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) suggest that the sellers are in control, while the pair trades below its main moving averages.
Upcoming resistance for USD/CAD is seen at the zone at 1.3350 level, followed by the 1.3380 area and the psychological mark at 1.3400. On the other hand, support levels are seen at the 1.3300 area, followed by April’s low at 1.3273 and the 1.3250 zone.
Looking ahead for the USD/CAD pair, analysts at ING note,
"A softening in the US Dollar can easily trigger a break below 1.30 as early as this summer."
"We still expect a negative re-rating in US growth expectations later this year to hit the highly exposed CAD more than other pro-cyclical currencies, but the coincident drop in USD means that the USD/CAD pair can end the year closer to 1.25 than 1.30."