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TD: "Nothing to Like" About Loonie as CAD Dips Below 75 Cents US

Forex Sep 19, 2022 15:17
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By Ketki Saxena 

Investing.com -- The Canadian dollar today fell below the 75 cent mark against the greenback for the first time since 2020, as the greenback continued its relentless rally ahead of a 75 bp - or potentially even 100 bp - move expected from the U.S. Federal Reserve on Wednesday.

At 3:15 p.m ET, the USD/CAD pair was trading at C$1.3259 to a greenback, or 0.7542 US cents to a Canadian dollar, with the day’s range on the CAD/USD pair at 0.7495 - 0.7547

Beyond the greenback’s broad-based strength against G-10 currencies, the likelihood that the Fed will be able to hike rates for longer and take them higher than the Bank of Canada poses a significant headwind for the loonie. 

The Bank of Canada’s benchmark overnight policy rate is currently at 3.25%, with economists expecting the Canadian central bank to top out at or around 4% this rate-hike cycle. 

As per analysts at TD (TSX:TD), “A record rise in household debt servicing ratios by year-end… should prevent the BOC from keeping up with the Fed. Our estimate of the Fed's terminal rate is well above 4%.”, while “The BOC has neared theirs.” 

Looking ahead, TD notes that “With global PMIs weakening, it will be difficult for the CAD to rally. We are also wary that a 'Volcker' kind of messaging emerges at the Fed, hampering the CAD.” 

The commodity-linked Canadian dollar was also pressured by continued weakness in crude, as investors worry that rate hikes from central banks will curtail demand for fuel. Crude also continues to be pressured by a stronger dollar. 

The TD analysts did not mince words on their outlook for the Loonie, noting that “There is nothing to like about the CAD at this time; it is the worst-ranked currency on our scorecard with almost all macro drivers leaning in the negative.”

On a technical level, TD notes that “Key USDCAD support in 1.3200/1.3230 as it marks a break of triple top."

TD: "Nothing to Like" About Loonie as CAD Dips Below 75 Cents US
 

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