By Ketki Saxena
Investing.com - The Canadian dollar weakened against its US counterpart today in another risk session as investors weighed hawkish Fed speak, which boosted appeal for the safe-haven greenback, while weakness in crude weighed on the commodity-linked loonie.
For the week, the U.S. dollar is on track for its biggest weekly gain since April 2020 on safe-haven demand, while the USD/CAD pair is about the end of the week with a gain of more than 200 pips.
However, the Canadian dollar was one of the stronger performing g-10 currencies this week. MUFG notes that “Part of the resilience for CAD this week in depreciating less than the rest of G10 was due to the stronger underlying measures of inflation that helped fuel some increased pricing for rate hikes by the BoC.”
At 2:230 p.m ET, the USD/CAD pair was at C$1.2989 to a greenback, up 0.32% in the day’s trading and with the day’s range of 1.2943 - 1.3010.
Jane Foley, head of FX strategy at Rabobank in London noted that “The U.S. dollar is again on the front foot this morning supported by another round of hawkish Fed speak ... the overall tone of Fed officials suggests that the Fed still has a lot of work to do to contain inflation”.
Following yesterday’s release of the Fed Minutes, rate-hike bets and the US dollar got a boost from hawkish Fed speak.
Federal Reserve Bank of Richmond President Thomas Barkin today said the central bank was “Committed to returning inflation to our 2% target and we’ll do what it takes to get there”. St. Louis Fed President James Bullard yesterday said that he leaned towards a third consecutive 75-basis-point rate hike in September, while Kansas City Fed President Esther George said the Fed will continue to tighten policy until it is “completely convinced” inflation is normalizing. San Francisco Fed President Mary Daly meanwhile supported a 50 or 75 basis point hike next month.
Meanwhile, the Canadian dollar was pressured by weak crude prices that touched six-month lows this week. Despite the week’s vacillations sentiment remains negative as global recession and demand destruction fears dominate, particularly following weak economic readings from China, and worries of a prolonged slowdown in the U.K. and the Eurozone.
The possible revival of the Iran nuclear deal and subsequent lifting of Western sanctions on Iran could also inject over 1 million bpd into the global market, while “Stubborn Russian oil”, as per ING analysts “should limit the upside in oil prices.”
Analysts at MUFG Bank, also bearish on crude’s near-term outlook, still see the USD/CAD moving further to the upside, on the back of a stronger US dollar. They have a target of 1.3420 and a stop-loss of 1.2600.