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Canadian Dollar Slides On Crude Prices, Risk Aversion, Weak Domestic Economic Data

Published 2023-10-02, 06:09 p/m
© Reuters.

By Ketki Saxena

Investing.com -- The Canadian dollar weakened against its US counterpart today as risk sentiment soured and crude prices receded, weighing on the risk-sensitive, commodity-linked loonie.

Weak domestic manufacturing further pressured the Canadian dollar, the latest economic data that's led to traders betting the Bank of Canada has little room left to continue raising rates.

The S&P Global (NYSE:SPGI) Canada Manufacturing Purchasing Managers’ Index (PMI) fell to its lowest level in nearly three years, falling from a seasonally adjusted 47.5 last month from 48.0 in August.

Meanwhile, the safe haven US dollar continued to rally against a basket of currencies on rising treasury yields, risk-aversion, and positive US economic data as the ISM Manufacturing PMI came in above expectations.

Looking ahead of the pair in the medium term however, analysts at HSBC remain optimistic on the loonie, and "see the CAD strengthening further against the USD in the run-up to the 25 October Bank of Canada (BoC) meeting."

They note that "If rate differentials become less of a dominant factor for USD/CAD, the determination of Organization of the Petroleum Exporting Countries (OPEC) and its allies (known as ‘OPEC+’) to support Oil prices could see the CAD strengthening over the next few weeks."

On a technical level for the pair, analysts at FX Street note, "September’s swing low into the 1.3400 handle saw technical support arrest declines and spark a reversal from the 200-day Simple Moving Average (SMA) currently sitting on the high side of 1.3450, and the US Dollar’s broad-market rebound has sent the USD/CAD pair back into September’s peaks near 1.3700."

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"USD bulls will be looking to gather enough momentum to make a decisive break of 1.3700, while CAD bidders will be looking for a way to send the pair back into the 34-day Exponential Moving Average (EMA) just north of 1.3500."

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