By Ketki Saxena
Investing.com – The Canadian dollar weakened against its US counterpart today, as oil prices and uncertain sentiment in equities weighed on the risk-sensitive loonie. The CAD received little impetus -positive or negative - from Bank of Canada Governor Macklem testimony to the Canadian Parliamentar, which little in the way of narrative.
The safe-haven US dollar meanwhile rallied against a basket of currencies as investors prepare for Central Bank hawkishness in may. Rate hikes are expected from a whole slew of cenbanks next month, including the Federal Reserve, the European Central Bank, and the Bank of England (BoE).
The diverging stance in monetary policy between the US Fed and the Canadian central bank are currently serving as a headwind for the loonie as differentials between US treasuries and GoC bonds widen.
Analysts at Danske Bank note, “We pencil in a higher cross driven both by a rebound in the broad dollar but also on the notion of relative monetary policy. Bank of Canada has turned to an “on-hold”-stance while we expect the Fed to deliver an additional 25bp hike.”
However, the analysts do not entirely discount the Canadian dollar, and name it as a relatively bullish pick amongst G7 Currencies.
“While we pencil in broader-based USD strength for the year ahead we also think CAD is in a relatively strong position compared to peers which limits the topside potential in USD/CAD. While the Canadian housing market remains a threat we still think the growth back-drop and the energy-reliance make for a much better cocktail than found in most other asset markets.”
On a technical level for the pair, analysts at FX Street note, “Looking at USD/CAD’s technical profile, the pair has recovered moderately after bouncing off trendline support late last week near the psychological 1.3300 level; in fact, the price has recaptured its 200-day moving average, a welcomed sign for bulls.”
“If gains accelerate in the near term, initial resistance stretches from 1.3475 to 1.3515, followed by 1.3560, near the 50-day simple moving average. On the flip side, if sellers return and trigger a bearish reversal, support appears at 1.3400, and 1.3290 thereafter."