By Ketki Saxena
Investing.com – The Canadian dollar continued to weaken against its US counterpart today to an 11 day low, underperforming all G10 peers this week as dampened risk-sentiment remained the dominant narrative, pressuring the loonie and boosting the safe-haven greenback.
The loonie was also pressured by a sharp decline in domestic retail sales - the biggest drop since July. The data indicated that Canadians are beginning to spend less as discretionary incomes are pressured by rising interest rates, further adding to bets that the Bank of Canada is finished tightening this rate hike cycle.
Meanwhile, bets are for the Fed to hike rates at least once more this year, serving as a tailwind to the loonie as differentials between US Treasury and GoC bond yields widen.
On a technical level for the pair, analysts at FX Street note, The high price today stalled within a swing area … between 1.3553 and 1.35638. The price also stalled near the 50% midpoint of the same move down from the March 24 high. That level comes in at 1.35518. That swing area is key for the pair going forward.”
“Move above and more upside probing can be anticipated with the 61.8% retracement near 1.3611 as the next target level/area. Conversely, stay below and move back below the 100 day moving average at 1.3526 would likely lead to a shifting back to the downside - at least in the short term - with the 38.2% retracement at 1.3492 and a swing area between 1.3480 and 1.34886 as the next target.”
Looking ahead for the pair on a fundam"ental level, analysts at Scotiabank (TSX:BNS) predict, “The CAD may continue to trade defensively over the coming week…The USD’s overvaluation (relative to our fundamental fair value estimate) is looking stretched again, however, and the broader USD range in place since late last year (roughly 1.3250/1.3850) is likely to remain in place.”
“ There may be some upside potential in the USD in the near-term but it may not be that much and we still rather think that USDCAD gains (particularly through the 1.36-1.38 are) offer good value for CAD buyers and USD sellers.”