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Canadian Dollar Trades Flat Against The Greenback; All Eyes on Bank of Canada

Forex Jan 24, 2023 16:38
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By Ketki Saxena 


Investing.com – The Canadian dollar traded flat against its US counterpart today, as investors consolidated bets ahead of the Bank of Canada’s monetary policy decision due tomorrow. Investors expect a 25 bps move from the Canadian central bank, widely anticipated to be the last of this rate hike cycle. 

With bets for the BoC’s move largely priced in, the pair’s dynamics were driven by the greenback’s retreat following weak US economic data, while the loonie was pressured by oil prices, and risk aversion in following warnings from benchmark Wall Street companies. 

The dollar beat a broad based retreat against a basket of currencies today as US data showed that business activity contracted for the seventh straight month in January, with investors continuing to price in a less hawkish Federal Reserve in February. 

The Canadian dollar meanwhile was pressured by a decline in oil prices on worries of slowing economic growth, and an expected build in US inventories. The Canadian dollar was also pressured by risk-sentiment in equities, after bellwether companies but warned of a tough year ahead for profits. All eyes remain, however, on the Bank of Canada’s monetary policy announcement tomorrow, at which a 25 bps move is expected to be its last for this rate hike cycle. 

Analysts at TD (TSX:TD) note ''CAD may be more sensitive to any dovish elements should the BOC emphasize elements from the BOS. CAD's correlation with risk is high so that may take on added importance.''

On a technical level, analysts at FX Live commented, “On three separate occasions, the price entered that swing area and bounced. The most recent bounce is the biggest with the price trading up to 1.3390 (it is trading near that level now)”. 

They recommend,  “The 200 hour MA (green line) at 1.3406 is the next key target followed by the 100 hour MA (blue line) at 1.3423. Get above both is needed to increase the bullish bias for the pair.”

Looking ahead, analysts at CIBC (TSX:CM) note,  “With markets almost fully priced for both the Bank of Canada and Federal Reserve over the rest of Q1, expect the Loonie to be stuck in neutral in the near term, with USD/CAD likely ending the quarter at 1.34.”

By the end of the year, they expect to see USD/CAD at 1.31, and “With global growth likely to receive a lift as central banks outside of North America start to normalize policy rates, and higher commodity prices benefitting Canada’s export sector, look for USD/CAD to reach 1.28 in 2024.”

Canadian Dollar Trades Flat Against The Greenback; All Eyes on Bank of Canada
 

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Comments (2)
Arvind Patel
Arvind Patel Jan 24, 2023 22:22
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We need 1% point hike next. Stay there till inflation comes down to 4%.
Arvind Patel
Arvind Patel Jan 24, 2023 22:22
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When it comes down to 4%, raise it by .50 till inflation comes down to 2%
Quang Nguyen
Quang Nguyen Jan 24, 2023 17:09
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we need about 6 or 7 more 75bps hike
 
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