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Loonie Loses Ground Against Greenback as Fed Bets Rise, Crude Trades in the Red

Forex Dec 05, 2022 15:47
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© Reuters.

BY Ketki Saxena 

Investing.com -- The Canadian dollar weakened against its US counterpart today, as a risk-off impulse driven by worries of further aggressive Fed tightening, and sliding oil prices weighed on the loonie.

 The US dollar meanwhile was supported by the prospect of a hawkish Fed and rising treasury yields after hotter-than-expected services PMI data. 

Following a loss of momentum last week further to a dovish speech from Federal Reserve Chair Jerome Powell, the dollar rebounded against major currencies on Friday after higher than expected US non farm payrolls. Today’s ISM Services PMI unexpectedly jumped in November of, rebounding from a more than 2-year low, indicating the US economy continues to weather the shock from interest rate hikes, further raising the case for continued hawkishness from the US central bank. 

The risk-sensitive loonie meanwhile was also pressured by a slide in crude prices. After rally early in the North American session following steady OPEC+ production, a cap on Russian crude, and the prospect of China’s reopening, crude was pressured by worries that continued aggressive moves from the Fed would slow demand for crude globally. 

On a technical level, analysts at FX Street note, “The daily chart shows that the USD/CAD is upward biased, breaking above a three-month-old downslope resistance trendline drawn from October highs.”

“Traders should be aware that a daily close above the latter would expose the November 29 daily high of 1.3645. Nevertheless, on its way north, the USD/CAD needs to clear the psychological 1.3600 figure, followed by the former, and then the 1.3700 mark.”

Up next for the pair, investors will be watching for the Bank of Canada’s monetary policy decision on Wednesday. Markets are pricing in a muted 25 bp move, taking rates to 4.00%. 

Looking ahead, analysts at Rabobank expect the pair to trade “back to 1.38 by year-end" even though “USD/CAD has been volatile and will likely continue trading in wide ranges.”

The analysts further note,  “We still expect CAD to outperform on the crosses in the coming months despite seeing upside for USD/CAD.”

So far this year, the Canadian dollar has been the third-best-performing G-10 currency buoyed by rising commodity prices, following the Swiss Franc and the safe haven US dollar. 

Loonie Loses Ground Against Greenback as Fed Bets Rise, Crude Trades in the Red
 

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