By Ketki Saxena
Investing.com – The Canadian dollar weakened to a four week low against its US counterpart today, as risk-aversion remained in the ascendant, as uncertainty in equities, weak US economic data, and reignited concerns of banking turmoil supported the safe-haven greenback.
The closely watched Atlanta Fed GDPNOW, a model that estimates GDP in the US, ticked in at 1.1% - well below the estimate of 2.5% for Q1 2023, indicating a contraction in the US economy.
Meanwhile, US business equipment orders declined more than expected, while a narrowing trade deficit offered a brief spot of positivity for economic growth in Q1.
Today’s influx of economic data had little impact on bets for the US Federal Reserve, with markets having nearly fully priced in a 25 bps move from the Fed in May - which investors are betting will be its last.
With Fed pricing appearing nearly fully priced at the moment, the dollar’s dynamics are being driven by rising risk-aversion, particularly following fresh worries around First Republic Bank which is seeking creditors after reports that little government intervention is likely to be possible for the beleaguered bank.
The Canadian dollar meanwhile received little impetus from the Bank of Canada’s meeting minutes, which were perceived as neutral. The BoC repeated much of the messaging it has consistently been iterating for the past few months: the Bank is currently awaiting further data to see how interest rates are impacting the economy, but that it remains prepared to act forcefully if needed to bring inflation back to target.
The Canadian dollar was also pressured by a slide in crude prices, as worries of slowing global growth continue to raise worries of demand destruction globally.
On a technical level for the pair, analysts at FX Street note, “USD/CAD remains well-placed to extend its advance heading into next month.”
“To have more conviction in the bullish scenario, the pair must clear confluence resistance at 1.3645 soon, a key technical barrier where short-term trendline resistance aligns with the 61.8% Fibonacci retracement of the March/April pullback. If this ceiling is breached, buyers could become emboldened to launch an attack on 1.3700, followed by the 2023 highs.”
“Conversely, if USD/CAD gets rejected from current levels and bears regain control of price action, the first support to consider appears at 1.3580, which corresponds to the 50-day simple moving average. If this floor is taken out, the next downside target to keep an eye on rests near the psychological 1.3500 handle.”
On a fundamental level for the pair, analysts at Scotiabank (TSX:BNS) note that while “The CAD Apr outperformance story has clearly faded after a solid first two weeks of the month but it still looks cheap relative to its fair value estimate”