USD/CAD: Loonie Pares Gains Weak Canadian data, Crude Prices, Robust US Jobs

© Reuters.

By Ketki Saxena 

Investing.com – The Canadian dollar weakened against its US counterpart today, as the greenback advanced on robust US jobs data  that had investors raise bets on the “ongoing rate hikes” projected yesterday by the US Federal Reserve. 

US Initial Jobless Claims falling to 183K from 186K a week earlier. and less than the expected 200K forecast by economists. 

The data drove focus to the hawkish elements of the Fed’s commentary yesterday, rather than comments about the “disinflationary process” having begun, as investors bet on further rate hikes from the Fed in May and March. 

The Canadian dollar meanwhile was pressured by falling US crude prices, which closed a volatile day of trading in the red on a stronger dollar, US inventory builds, and worries of an economic slowdown outweighed the prospect of a price cap on Russian exports set for the 5th of February. 

The Canadian dollar was also pressured by weak domestic economic data, as building permits, which shrank -7.3% more than estimates for a -5% contraction, indicating a weakening economy and raising bets that the Bank of Canada’s “conditional” pause announced last week will become a certainty. 

Analysts at HSBC note,  “With the BoC now potentially pausing its rate hikes, the risk of over-tightening has retreated and the risk of domestic recession has reduced, somewhat supporting the CAD.”

They also add that “More broadly, the BoC provides the first example of an end, albeit still a conditional one, to a developed market’s tightening path in the current cycle. Others are likely to join it in the coming months, building a ‘risk on’ narrative that the headwind to activity from global rates is not set to intensify further. This should support the CAD.”

On a technical level for the pair, analysts at FX Live note, the “Swing area is now joined by the rising 200 day moving average. That moving average currently comes in at 1.32127. Having the swing area and the 200 day moving average at the same area increases the areas importance.”

“Just below that area is also the 50% midpoint of the range since the 2022 low at 1.31895. So on further selling going forward, there is a lot of support between 1.31895 and 1.32299.”