By Ketki Saxena
Investing.com – The Canadian dollar weakened to a close to seven week low against its US counterpart today, as a decidedly hawkish tilt to the Federal Reserve’s meeting minutes and rising risk-aversion boosting the safe-haven greenback, while pressuring the risk-sensitive loonie. The commodity linked Canadian dollar was also pressured by a $3 slide in crude prices driven by Fed fears and robust US inventory builds.
The big story in markets today was undoubtedly the release of the Federal Reserve’s release of minutes for its meeting in early February.
The document showed that Fed officials agreed more rate hikes are needed to achieve the inflation target, and further favor Fed balance sheet reduction. Participants also highlighted that continued tightness in the US jobs market is likely to add increasing upward pressure on inflation.
Earlier in the day, comments from St. Louis Federal Reserve President James Bullard, who called for more aggressive interest rate hikes now also helped the greenback gain across the board against major currencies.
The Canadian dollar meanwhile was pressured both by the risk-off environment driven by Fed fears, as well as the growing differential likely between interest rates from the Bank of Canada and the Federal Reserve.
A cooldown in Canadian inflation yesterday, with CPI falling to 5.9%, as well today’s new housing price data that indicated a further weakening in Canadian real estate, also raised bets that the Bank of Canada’s previously announced conditional pause to rate hikes is likely to be permanent.
Analysts at Commerzbank (ETR:CBKG) note, “Some market participants might worry that – in view of a combination of weaker than expected inflation and a significant fall in retail sales – the BoC will drop behind compared with the Fed and ECB; that is putting pressure on the CAD.”
The Canadian dollar was also pressured by a slide in crude prices, as the prospect of higher U.S. interest rates stoked concerns about fuel demand. A rise in US inventories - around 10 million barrels for a second week in a row - also put pressure on crude, as investors prepare for oversupply in an unseasonably warm winter.
On a technical level, analysts at Scotiabank (TSX:BNS) note, “A bullish alignment of intraday and daily DMI oscillators supports the bullish backdrop for the USD; the charts suggest a fairly easy push on to the 1.36/1.37 range from here to retest the peaks seen in December.”
“Risk appetite looks soft and flows are liable to favour the USD in the short run.”