By Ketki Saxena
Investing.com -- The Canadian Dollar gained against its US counterpart today, buoyed by an uptick in risk sentiment following yesterday’s rate hold from the US Federal Reserve, and as the US dollar pared back.
Despite today’s boost, the loonie remains pressured by the USD looking forward, for a number of reasons.
“The loonie has never met a crisis it didn’t want to join,” noted BMO (TSX:BMO) chief economist Douglas Porter in a recent note, citing geopolitical turmoil in the Middle East as a reason for the risk-sensitive Canadian currency’s slide.
The recent rise in bond yields, which helped boost the USD, is also “a secondary pain trade which has of course skewered almost all other currencies, Porter notes.
The loonie has also been pressured by what Porter calls ““a staggering divergence” between GDP growth in US and Canada, as the Canadian economy likely enters a technical recession, or two consecutive quarters of stagnating growth.
The divergence in GDP will also make it likely that the Bank of Canada will have to cut interest rates sooner and on a more accelerated timeline than the Fed, leading to bearish bets on the Loonie for the medium term.
On a technical level for the USD/CAD pair, analysts at FX Street note, “Near-term technical support sits at the 50-day Simple Moving Average (SMA) at 1.3625, while a longer-term move toward the downside sees a floor at the 200-day SMA currently rising into 1.3500.”
“A topside break of yesterday’s peak will see fresh year-long highs for the USD/CAD, with the way clear for a run at 2022’s high bids near 1.3980 set in October of last year.”