By Ketki Saxena
Investing.com -- The Canadian dollar traded weakened against the USD today, with risk-aversion in the ascendant ahead, and as US treasury yields rose ahead of a monetary policy announcement from the US Federal Reserve next week.
However, the Canadian currency managed to defend most of its weekly agains on firm crude oil prices on tight supply from OPEC+ production cuts, and optimism around the China demand scenario.
On a fundamental level for the pair, analysts at Scotiabank (TSX:BNS) note, "Markets are tending to look though improvements in commodity prices and terms of trade as supports for the CAD at the moment"
"The CAD still looks fundamentally “cheap” but undervaluation is somewhat less extreme than the past couple of weeks. The fair value model does suggest some improvement in the factors driving the CAD over the past few days which supports the case for looking to pick up the CAD on dips in the short run at least."
Up next, further impetus for the USD/CAD pair will come from Canadian consumer price data, due on Tuesday September 19.
Headline inflation is seen increasing in August compared to the month prior, driven by rising energy prices, which may push the Bank of Canada to reestablish its hiking-cycle.
Further to the Canadian CPI reading, all eyes will be on the US Federal Reserve's decision on Wednesday September 20. The Fed is widely expected to hold interest rates steady next week, but traders will be closely watching Fed guidance to anticipate what comes next.
On a technical level for the pair, analysts at Forex.com note that the pair needs "a move back above 1.3630 (38.2% Fibonacci retracement) to bring the monthly high (1.3695) on the radar, with the next area of interest coming in around above 1.3820 (161.8% Fibonacci extension)."
"However, failure to hold above the monthly low (1.3489) may push USD/CAD towards 1.3440 (23.6% Fibonacci retracement), with a move below the 50-Day SMA (1.3415) opening up the 1.3230 (100% Fibonacci extension) to 1.3310 (50% Fibonacci retracement) region."