By Ketki Saxena
Investing.com – The Canadian dollar rallied against its US counterpart today, as risk-sentiment switched on and treasury yields pared back across the curve, pressuring the dollar after the US December jobs report indicating cooling wage growth. Economic data also indicated contraction in services activity, which further helped ease worries that the US Federal Reserve will hold rates higher for longer.
The Canadian jobs reports meanwhile smashed all expectations, indicating far greater than expected resilience in the labour market, and raising the best for a rate hike from the Bank of Canada later this month. The Canadian economy added 104,000 jobs in December, compared to expectations for a mere 5000 job additions.
The risk-sensitive loonie gained further support from crude prices as Fed Expectations eased, China announced more state support measures to help its economy recover from COVID-19 lockdowns, and following yesterday’s news that US fuel stockpiles rose more than expected.
On a technical level, analysts at FX Live note, “The USDCAD has moved below the 100 day MA and in doing so, is the first time since November 16. At that time, and the preceding day on November 15th, the break quickly failed and rotated/closed the day above the MA level. The last time the price closed below the 100 day MA was back on August 12. "
“Sellers are making a play. Stay below the 100 day MA, and the 38.2% of the move up from the low at 1.3499 (call it 1.3500), would give the sellers the edge technically.”
Looking ahead for the USD/CAD pair, a Reuters poll noted that the median analyst's expectation is for the loonie to edge 0.6% higher to 1.35 per U.S. dollar, or 74.07 U.S. cents, in three months as the Fed moves towards the end of its rate-hike cycle. The US Fed’s aggressive rate hikes have provided much of the impetus for the US dollar’s dominance in 2022.
"In the second half of the year we look for stabilization and a mild recovery in growth - not only in Canada but globally," noted George Davis, chief technical strategist at RBC (TSX:RY) Capital Markets.
The commodity-linked loonie is also expected to be supported by a rebound in demand for crude as global central banks pause and potentially pivot from the aggressive policy tightening that defined 2022.
"A more positive economic cycle would bode well for commodities and CAD as well.", Davis noted.
In a year, the loonie is expected to reach 1.30 to the greenback, or an expected gain of 4.5%.