By Ketki Saxena
Investing.com – The Canadian dollar strengthened against its US counterpart today, as the USD lost ground against most major currencies as expectations for Fed hawkishness continued to pare back following Friday’s weak economic data. The risk-sensitive Canadian dollar meanwhile was further boosted by China’s reopening of its borders, and gained additional support from crude prices on the prospect of renewed Chinese demand.
The US dollar weakened across the board today as investors continued to hope for a less hawkish Fed after Friday’s US payrolls data indicated cooling wages, while services PMI data showed a big miss, stoking fears the Fed will drive the country into a recession if it continued tightening aggressively into 2023.
As Fed expectations for its next move in late Jan pare back - and the US central bank moves to pause or pivot on monetary policy in the coming year - analysts believe that the dollar has reached the end of its rally.
Analysts at Goldman Sachs (NYSE:GS) note, their “new forecasts suggest that the Dollar has peaked—not likely to revisit the September (during the U.K. fiscal fears) highs again” although it is “still likely to experience phases of strength in the next 3-6 months until it retreats more convincingly over a 12m horizon.”
As global central banks wind down their aggressive policy tightening measures, riskier currencies like the CAD are expected to benefit. However, in the short term, the fact that the Fed will hold its policy rate higher, and higher for longer than the Bank of Canada - will serve as a tailwind for the loonie.
Up next for the pair, investors will be awaiting a speech from Bank of Canada governor Tiff Macklem tomorrow in Stockholm, although the major catalyst this week will be Thursday’s US CPI data.
On a technical level, analysts at FX Street note, “A retest of last week's low near 1.3430 opens the risk of a move beyond and into the Fibonacci scale to target a 38.2% ratio that meets late December and early January lows as the structure around the 1.3470s.”
“Should the bears commit at this juncture, then they will be encouraged to stay the course for a re-run of the recent lows to target a -272% ratio of the corrective range that meets prior lows of 1.3316 that guard the 1.3220s.”