By Ketki Saxena
Investing.com -- The Canadian dollar extended its decline against the US counterpart today, as hawkish comments from Fed Chair Jerome Powell weighed on risk sentiment, pressuring the loonie and lending support to Treasury yields and the US Dollar.
In his speech today, Powell noted that the FOMC committee “Is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance”.
The US dollar was also supported by lower-than-expected US new jobless claims, which bolstered the narrative that the Fed does have further room to raise rates.
As investor uncertainty grows about whether the Fed has concluded its policy-tightening campaign, the Bank of Canada is expected to begin cutting rates in April 2024.
The expected widening of interest rate differentials in favour of the US dollar has led to analysts cutting their targets for the Canadian dollar in the medium and long term.
36 foreign exchange analysts surveyed by Reuters between Nov. 3-7 expect the Canadian dollar to strengthen 2.3% to 1.345 per U.S. dollar in three months, compared to calls for the loonie at 1.340 in an October poll.
On a technical level for the USD/CAD pair, analysts at Forex.com note, “The complication that bulls could soon face is that if price does pose a breakout above the 1.3900 zone that held the highs last week, there’s another major level sitting overhead at 1.4000.”
“So, if we do get above 1.4000 the natural next question is whether reversal may soon show, as major psychological levels on a natural cross can have a tendency to bring commercial investors or hedgers into the mix to take advantage of the spot rate showing a historical deviation."