By Ketki Saxean
Investing.com – The Canadian dollar rallied against its US counterpart today, supported by an uptick in risk-on sentiment reflected in equities and crude prices, as investors await tomorrow’s all important US inflation data.
Analysts at Scotiabank (TSX:BNS) note that while “The backdrop of positive risk appetite, narrower spreads and firm crude (plus stronger commodities generally to challenge the recent downtrend) is supportive for the CAD but investors remain reluctant to endorse that view and—based on the recent trend in positioning data—still rather prefer to take the opposite approach.”
“Bearish CAD positioning, at least based on the latest IMM data, looks quite extreme (the combined net CAD short rose again in the latest week’s data and remains the biggest, bearish bet on the CAD since 2008) and looks vulnerable to a squeeze at some point.”
The US dollar meanwhile dipped ahead of inflation data. The US CPI expected to show headline inflation rising by 0.2% in March, and core inflation up 0.4%; a cooldown from recent months that has investors positioning for the US Federal Reserve to pause interest rate hikes if not in May, then soon after.
Swap pricing indicates that investors are currently betting on a 25 basis points at the Fed’s May 2-3 meeting, before pausing in June.
Markets are also pricing for the Fed to cut rates by year-end, particularly in the context of the recent banking crisis, which has economists including those at the IMF calling for policymakers to cut rates if needed to bolster a still fragile financial system.
Earlier today, Chicago Fed President Austan Goolsbee (a voting member of the FOMC committee this year), referenced the banking crisis as a critical factor in gauging monetary policy moves going forward.
The Bank of Canada meanwhile is unanimously expected to stay on the sidelines at its monetary policy meeting tomorrow.
On a technical level for the pair, analysts at FX street note “For most of the North American session, the price has been able to stay below the 100/200 hour MAs. Those MAs have crossed today with the 100 hour MA at 1.34929 moving above the 200 hour MA at 1.34860. Buyers tried to extend above the lower 200 hour MA over last six so trading hours, but sellers kept a lid on the pair. The last few hours has seen the sellers overwhelm the buyers and push the price lower – and to new session lows.”
“The 1.34569 is the next target followed by the lows from April 5 at 1.34251. Below that and the low from last week at 1.3405 and the rising 200 day MA at 1.3390 will be targeted"