By Ketki Saxena
Investing.com – The Canadian dollar rallied against its US counterpart today, as a blockbuster Canadian jobs report ratcheted up expectations for further rate hikes from the Bank of Canada, and a possible reconsideration of the “conditional pause” the BoC has been signaling.
Canadian jobs smashed expectations for a second consecutive month, posting a gain of 150K vs 15K estimate in January.
The commodity linked Canadian currency also gained support from a rally in crude prices, following news that Russia will cut crude output in March in retaliation for G7 price caps.
The pair’s dynamics today were driven by the sudden resurgence in the loonie, rather than US dollar weakness. The greenback continued to rally against most major currencies on worries of continued central bank hawkishness, and as benchmark 10 year treasury yields rose to their highest levels over a month.
Risk-off sentiment, boosting the dollar, is being driven not just by expectations for a hawkish Fed, but also commentary from the ECB and several other central bank governors that interest rates will need to climb further to combat inflation.
On a technical level, analysts at FX Street noted, “The USDCAD has moved lower on the report (higher CAD) and fell below the 200 hour MA at 1.33832 to a low of 1.33695. That low just took out the low price from yesterday at 1.33716. The price remains above the low from Wednesday however (and week). That level comes in at 1.33592.”
“On further selling, there is a swing area going back to early January between 1.3339 and 1.3358… Getting below that area would increase the bearish bias.”
“This week's low (so far) stalled near the top that swing area, and also against the 200 hour moving average (green line in the chart above). That 200 hour moving average also stalled the fall yesterday. Breaking below it today gives sellers more control. Traders will be watching the level as a key barometer for bullish and bearish today. Stay below is more bearish.”
On a fundamental level, analysts at ING expect the USD/CAD pair to move below 1.30 in the second quarter as the global outlook improves and supports the risk-sensitive loonie.
“CAD is not our favourite commodity currency for 2023 given a deteriorating domestic and US economic outlook, but can still count on respectable rate attractiveness and high-beta to risk”