By Ketki Saxena
Investing.com -- The Canadian dollar weakened against its US counterpart today to its lowest level in more than two years as risk aversion dominated, pressuring equities and the risk-sensitive Canadian dollar. The loonie was further pressured by losses in crude, as worries of demand destruction outweighed last week’s OPEC+ production.
The US dollar continued to be boosted by rising expectations for rate hikes from the Federal Reserve following hawkish commentary and positive labour market reports last week, and ahead of Thursday’s CPI reading. The key inflation report is expected to show persistently strong price pressures, further boosting the case for the Fed to remain aggressive.
Money markets are now betting on an over 90% chance of a 75 bp move from the US Central bank in November.
The safe-haven dollar was also boosted by worsening risk appetite as Russia escalated strikes on Ukrainian cities, in retaliation for damage to the only bridge linking Russia to the Crimean peninsula.
The risk-sensitive Canadiand dollar meanwhile was further pressured by the second day of losses in crude, driven by worries of a global recession and demand destruction. Rising Covid-19 cases in China and the IMF’s cut to its global growth forecast have once again brought worries of lower demand to the forefront, outweighing the OPEC decision last week to cut output by 2 million bpd.
On a technical level for the USD/CAD, Forex Live notes, “Risk focused sellers should show up with stops above the 1.3854 level. A move above would put the price in the extreme area from 2020 which has a lot of room (just see the weekly chart). Traders - on a break of 1.3854 - will want to see the price stay above that level and probe the upside.”
Looking ahead, analysts at CIBC (TSX:CM) see the pair ending the year around the 1.40 level, before paring back in 2023. “A run to 1.40 is quite possible, and a rebound at year end should still see CAD in 1.38 territory” the analysts noted. “In 2023, we see scope for a broad softening in the USD as the Fed pauses hiking below current market expectations, which will see CAD end the year stronger, with USD/CAD at 1.32.”
Up next for the pair, all eyes will be on Thursday’s US inflation report and further crude dynamics.