Investing.com – The Canadian dollar saw moderate gains against its U.S. counterpart on Wednesday, supported by risk-on sentiment as Wall Street rallied, with the S&P 500 at a new record and a hair’s breadth under the 5,000 mark.
The Canadian currency also gained support from higher crude prices, after US fuel stocks fell more than expected, and tensions in the Middle East rose after the rejection of a ceasefire.
The loonie also found support from the Bank of Canada's summary of deliberations, which noted that the BoC was "particularly concerned about the persistence of inflation and did not want to lower interest rates prematurely", further supporting bets that the BoC would not begin cutting rates until June.
The US dollar meanwhile traded neutrally against most major currencies, as investors pared back on the USD following a Federal Reserve driven pile-in in recent days.
On a technical level for the USD/CAD pair, FXStreet analyst Joshua Gibson notes that “Daily candlesticks have the USD/CAD trading firmly into the 200-day Simple Moving Average (SMA) near 1.3475, and the pair is at risk of tipping back into a congestion zone between the 50-day and 200-day SMAs as long-term trends drift into a consolidation trap.”
“A tilt into bullish territory will need to break above 1.3550 to make another leg higher, while sellers will be looking for further downside from the near-term swing low into 1.3558.”
Looking ahead for the USD/CAD pair, analysts widely expect the Canadian dollar to strengthen over the coming year as the Fed cuts rates, and amidst a broad based decline for the USD in the latter half of 2024.
A Reuters poll of 40 foreign exchange analysts surveyed between Feb. 1-6 shows that the median forecast loonie to strengthen 0.7% to 1.34 per U.S. dollar, or 74.63 U.S. cents, in three months.
In a year, the loonie is expected to advance to 1.30 in a year.