By Ketki Saxena
Investing.com -- The Canadian dollar managed to eke out a gain against the US dollar today, as the benefits of a larger-than-expected rate hike from the Bank of Canada, and a broad-based weakening in the US dollar against major currencies were mostly offset by a continued slide in oil prices.
The Bank of Canada hiked interest rates by a higher-than-expected 50 bps, and signalled that another rate hike may be on the table, although the end of this tightening cycle looks to be on the horizon.
In the immediate aftermath of the BoC’s 50 bps rate hike, the Loonie appreciated against the US Dollar, although benefits to the loonie remained limited as investors continue to expect hawkishness from the Federal Reserve.
While the Bank of Canada - by broad consensus - appears to be near the end of its rate hike cycle, the Fed is expected to continue on its path of aggressive tightening as a slew of positive economic data indicates resilience in the US economy.
The commodity-linked Canadian dollar was also pressured by crude prices, which fell for the fourth day in a row and remained near levels not seen since January. Despite positive indicators from the Chinese reopening, price cap on Russian crude, and OPEC+ output, crude is being pressured by Fed expectations and worries of demand destruction.
Crude’s slide today was driven by the U.S. EIA’s report that the combined build in gasoline and distillate inventories for last week higher than the drawdown in crude.
On a technical level for the USD/CAD pair, analysts at Scotiabank (TSX:BNS) note “Spot gains above short-term trend resistance off the Oct high (1.3585) leave the USD with a clearer path to retest 1.38+ from here.”
“Resistance is 1.3805 and 1.3970/75”, while “Support is 1.3645 and 1.3585; weakness back below here is needed to temper USD gains.”
Looking ahead, a Reuters poll indicates that the majority of currency analysts remain bullish on the Canadian dollar in the coming year as China loosens Covid-19 restrictions, and the Fed winds down its aggressive monetary policy tightening cycle.
According to the median forecast of 35 currency analysts surveyed Dec. 1-6 the currency will rebound 1.1% to 1.35 per U.S. dollar, or 74.07 U.S. cents, in three months, compared with November's forecast of 1.36.