By Ketki Saxena
Investing.com -- The risk-sensitive Canadian dollar gained against its US counterpart today, reflecting optimism in equities, expectations that the Bank of Canada may hike rates again as core inflation remains sticky (despite a cooldown in the headline number), and as markets become increasingly confident that the US will avoid a recession.
Analysts at SocGen note, "Canadian CPI slowed to 2.8% in June, falling more than the 3% consensus. However, the two metrics of core inflation followed by the Bank of Canada have been slower to fall, currently averaging 3.8%, 1 percentage point above headline inflation, which is pressured by base effects and lower energy prices."
"This could prompt further BoC tightening and cause the US/Canada rates differential to head south, leading to a gradual decline in USD/CAD."
Analysts at Goldman Sachs (NYSE:GS) however, take a different perspective, commenting that "Another rate hike might not have the same positive effect on the currency in the short term as before. With the Dollar experiencing a weakening phase due to moderating inflation concerns, CAD might face challenges in other currency pairs."
They also advise against long bets on the loonie to capitalize on the greenback's weakness, noting that "While a declining Dollar should typically push USD/CAD lower, the Canadian dollar is not Goldman's first choice for capitalizing on USD's weakness. This is primarily due to CAD's high sensitivity (or beta) to USD movements."
The commodity-linked faced some pressure from crude prices which reversed the day's gains to close in the red, which analysts largely attributed to profit taking after the commodity's recent gains.
On a technical level for the pair, analysts at FX Street note that "It will take a decisive break above the 50-day Simple Moving Average (SMA) at circa 1.3400 to refresh and reconfirm the USD/CAD long-term uptrend. Nevertheless, bulls marginally have the upper hand, with the odds slightly favoring a recovery and a continuation higher. "
"Only a decisive break below 1.3050 would indicate the thick band of weighty support in the upper 1.30s has been definitively broken, thereby bringing the uptrend into doubt. "