By Ketki Saxena
Investing.com --- The Canadian dollar weakened to reach its lowest point in almost three weeks against the U.S. dollar on Wednesday, suffering along with other risk-sensitive currencies as investor concerns mounting over the standoff in US debt ceiling talks. Meanwhile, the safe-haven U.S. dollar appreciated against various major currencies.
Analysts at Commerzbank (ETR:CBKG) note, “CAD is unable to keep up; and clearly the uncertain outcome of the row about the debt ceiling is having a bigger effect than the rising rate expectations for Canada (stronger compared with the US).”
However, the current underperformance of the loonie points to a positive once the debt-ceiling negotiations receive our agreement: “From our point of view this entails moderate potential for further CAD recovery against USD once it becomes clear that an agreement can be reached at the last minute.”
“It cannot be excluded that the market will also see a higher likelihood of a Fed rate hike after the US debt conflict is resolved, but CAD should at least be well supported against a Dollar which remains in good demand.”
The Canadian dollar however did receive some support from oil prices today, after an unexpected reduction in U.S crude inventories were announced alongside Saudi Arabia’s energy minister's warning about potential OPEC+ production cuts looming on the horizon.
Despite the decline, the Canadian dollar outperformed other risk-on currencies, particularly Australia's and New Zealand's dollars following an announcement from the Reserve Bank of New Zealand signaling an end to interest rate hikes.
“The CAD is quite likely seeing a bit of spillover from quite an aggressive selloff for both the Aussie and Kiwi today,” noted Shaun Osborne, chief currency strategist at Scotiabank (TSX:BNS).
On a technical level for the pair, analysts at Credit Suisse (SIX:CSGN) note "USD/CAD continues to trade in the middle of its range, but in our view, the price action looks like a clear potential bullish ‘triangle’ continuation pattern.. “Next key resistance is seen at 1.3670, then 1.3864, above which would definitively confirm the “triangle” to open up a move to 1.3978/4000 next, then 1.4099.”
“Key support is seen at 1.3301, which needs to hold to maintain the bull ‘triangle’ potential.”