By Ketki Saxena
Investing.com -- The Canadian dollar weakened against its US counterpart today, as falling oil prices weighed on the loonie. The US dollar meanwhile saw sustained buying following last week’s chorus of Fed hawks, and rising risk aversion after a new round of lockdowns in China exacerbated worries of a global economic slowdown.
The USD index surged last week following a range of comments from Fed hawks who reiterated that a pause in rate hikes were “off the table” and that rates needed to rise until inflation has “at least stopped climbing. St. Lous Fed president James Bullard meanwhile flagged the need for the rate to possibly rise to a 5% to 7% range.
The safe-haven dollar continued its march ahead today as news of lockdowns in China worsened worries of a global economic slowdown raised by the prospect of aggressive and continued Fed tightening.
The crude-linked loonie meanwhile was pressured by oil prices, which fell to a 10 month low on worries of Chinese demand destruction, and a possible rise in OPEC+ output. The Wall Street Journal reported earlier today that OPEC+ is mulling an output boost of 500,000 barrels per day (bpd). By late afternoon however, oil prices had rebounded to trade flat after Saudi Arabia denied reports of an output increase, stating that the bloc may instead cut production.
Interestingly, analysts note USD/CAD pair dynamics are being driven largely by oil market dynamics, and that the loonie’s fundamentals continue to show resilience against the greenback.
Analysts at JustMarkets note, “The strength of the Canadian dollar may be due to rising expectations of a peak rate after last week's release of Canadian inflation data. The peak rate is expected to reach about 4.25%. Markets are still factoring in the 50% chance of a 50 bps rate hike at the Bank of Canada meeting on December 7.”
On a technical level, analysts at Scotiabank (TSX:BNS) note that, “Corrective USD gains have extended to near the mid-1.34 zone where we do think there is a reasonable technical case for the rebound to stall. This is where the 61.8% retracement of the sell-off from 1.3575 and short-term bull potential from the rebound from the low 1.32s converge.”
“There is firm resistance above the market at 1.3495 (bear breakdown point) should gains extend.”
Credit Suise analysts meanwhile see a resistance level of 1.3508, noting that the best way to sell is to consider this level.
They note, “Buy trades should be considered on the lower time frames from the support level 1.3351 or 1.3281, but with additional confirmation in the form of a reverse initiative.”
The analysts further provide an alternative scenario for a continued uptrend on the pair: “If the price breaks out and consolidates above the resistance level of 1.3508, the uptrend will likely resume"