By Ketki Saxena
Investing.com -- The Canadian dollar strengthened against its US counterpart today, boosted by a revival in risk sentiment and a bounce in crude prices. The U.S. dollar meanwhile retreated against most major currencies, as treasury yields fell ahead of the US Federal Reserve's meeting minutes due tomorrow.
Despite a spate of restrictions in China - including mass tests in major cities, and shutdowns of parks, museums, and other public places in Beijing - investor sentiment remained buoyed by expectations of a softer tone tomorrow from the Fed’s minutes tomorrow.
The Fed will release minutes of its November policy meeting on Wednesday, offering a glimpse of how officials view economic conditions. Investors will be hoping for a softer tone as slowdown fears mount, despite last week’s chorus of hawkish rhetoric from Fed policymakers. Risk sentiment was also supported by better-than-expected results from US retailers, supporting equities - typically correlated to the CAD.
The commodity link loonie was also supported by a bounce in crude prices after yesterday’s fall to a 10-month low. Crude rebounded today after Saudi officials denied they were mulling a production increase of 500K bpd at the bloc’s December meeting.
On a technical level, the pair staged a solid rejection of key resistance at 1.3495 yesterday. Economists at Scotiabanks write “Short-term price patterns imply a clear reversal from the upper 1.34s, with the USD extending losses under minor support (rising channel on the intraday chart) at 1.3410/15 (now intraday resistance). Losses should extend towards 1.3290/00 in the short run from here.”
Looking ahead, the Scotia analysts note that “The overall pattern of trade keeps the USD on track for a retest of the 1.32 area and, eventually, a drop to the measured move target derived from the Head and Shoulders of 1.3025.”