By Ketki Saxena
Investing.com -- The Canadian Dollar weakened to a new yearly low against the US today, as rising US Treasury yields continued to support the US dollar, and as market sentiment remains uncertain ahead of a monetary policy decision from the US Federal Reserve next week.
Although a pause from the Fed next week is priced in , reinforced by today’s PCE data coming in as expected, a higher for longer rate environment is expected even if the Fed has neared the end of its tightening cycle.
In Canada meanwhile, markets are pricing in rate cuts as early as spring 2024, posing a tailwind for the loonie.
Analysts at Wells Fargo (NYSE:WFC) note, “With inflation gradually heading lower we believe Bank of Canada rate hikes are done, and that rates cuts could begin in Q2-2024, ahead of the Federal Reserve.”
“As Canadian growth remains subdued and in the absence of further BoC tightening, we also see potential for further Canadian Dollar weakness.”
The commodity linked Canadian dollar gained little support from crude prices, which reached a one-week high on a re-escalation of the Middle East conflict.
On a technical level for the pair, analysts at FX Street note, “A technical support zone from 1.3600 to 1.3650 stands nearby to bump any downside corrections, with the 50-day Simple Moving Average (SMA) rising into the 1.3600 handle to add further support.”
“Further beyond that, the 200-day SMA is turning bullish and catching some lift into 1.3500.”