By Ketki Saxena
The Canadian dollar strengthened against its US counterpart today, supported by an uptick in risk sentiment as debt ceilings talks get underway.
The commodity linked loonie was also supported by a gain in crude prices, on worries of tight supply following the wildfires in Alberta, and optimism on the likelihood that the US will need to begin refilling its Strategic Petroleum Reserves in June.
The US dollar meanwhile saw broad based weakness against a basket of currencies, as investors continued to bet that the Fed will stay on pause on weak domestic economic data.
However, investor bets for the Fed to pause appear to be in contrast to what policymakers are saying: Federal Reserve speakers pushed back against cutting rates by 2024, emphasizing high inflation levels and stating that fast-hiking campaigns are still impacting the economy. Notably, famously hawkish Fed President Neil Kashkari from Minnesota argued that inflation remains too high but is slowing, although more work lies ahead for the Fed.
The New York Empire State Manufacturing Index fell short of expectations,with nearly half of the survey respondents reporting worsening business conditions that led to a decline in the orders index and growth in the prices gauge.Employment components also contracted.
The safe-haven dollar also suffered from declining risk sentiment as optimism grew around debt ceiling talks, with President Joe Biden noting that talks were "moving along” and National Economic Director Lael Brainard added that negotiations were serious and constructive.
On a technical level, analysts at FX Street note, “The USD/CAD continues to coil inside a narrowing range as highlighting by the converging trend lines, as price oscillates around its long-term 200-day average. It is not a trending market, making it ideal for range traders. However, soon it could provide us a clear signal about its direction bias, depending on which level it breaks first.
“As a minimum, we would look for a daily close above 1.3550 resistance to turn bullish on this pair, while a move above its recent high of 1.3668 would likely signal the end of the bearish trend.”