By Ketki Saxena
Investing.com — The Canadian dollar weakened against its US counterpart today, as risk-aversion remained on the ascendant, pressuring equities, crude prices, and the commodity linked loonie. The dollar meanwhile started the day on the back foot against a basket of major currencies as US jobless claims rose, but gained a boost from hawkish commentary from US Fed policymakers.
Cleveland Fed President Loretta Mester noted that the Fed had more rate increases ahead (note the plural) - although the tightening cycling is nearing its end.
In Canadian Cenbank speak, BoC governor TIff Macklem addressed concerns that the could depreciate against the dollar, given that the BoC remains on pause vis-a-vis rate hikes, while the Fed still appears to have some steam left.
The concern is that a weak Canadian dollar will affect import prices, pressuring inflation once more just when the target-level (2%) appears in sight (end 2024).
However, Mr. Macklem noted that worries of a depreciating loonie “is not a major concern. We have an independent monetary policy, we have a flexible exchange rate," "I don't see a big problem if the U.S. is going a little higher than us. I think that's kind of already built into the market," he said.
This is a view analysts at RBC (TSX:RY) reiterate, noting that worries of weakening CAD- import-driven inflation are largely unfounded.
They note, “A weak CAD won’t derail inflation trends that are now heading in the right direction. In an increasingly services-dominant economy, demand, not currency, will decide where prices go.”
On a technical level for the USD/CAD, analysts at DailyFX note, “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.