By Ketki Saxena
Investing.com – The Canadian dollar weakened for a second day against its US counterpart, hit by risk-off sentiment in equities and crude following weak U.S. economic data that exacerbated worries of a recession.
The dollar meanwhile recovered from yesterday’s two month lows, even as expectations for further rate hikes from the Federal Reserve continued to pare back.
While Treasury yields continued to fall, indicating rising hopes of a Fed pause, and serving as a tailwind to the greenback, the USD was boosted by unwinding short positions and profit-taking ahead of Friday’s non-farm payrolls data.
However, despite the greenback's gains today, analysts expect that risks to the greenback remain tilted to the downside as a slew of weak economic and labour employment data in recent days supports the likelihood of the Fed holding rates steady in May.
Meanwhile, expectations for the BoC - and its implications on the Canadian dollar - remain uncertain, and dependent on incoming Canadian data that has so far in 2023 indicated robustness in the economy and labour markets.
Analysts at ANZ bank note, “If CPI continues to slip towards the BoC’s expectations of 2.6% YoY by year-end, the pause in the current monetary policy tightening cycle may bring about a rebound in broader economic data later in the year, leading to tailwinds for the CAD as the DXY declines and Oil prices rise as per our forecasts.”
“In the near term, CAD underperformance will continue, but we believe that USD/CAD will gradually fall to 1.29 by December this year.”
On a technical level for the USD/CAD pair, analysts at FX Street note “The upward potential remains limited, as indicators have barely recovered from near oversold readings, lacking strength enough to confirm another leg north. Furthermore, USD/CAD develops below a directionless 100 Simple Moving Average (SMA) at 1.3520, while the 20 SMA gains bearish traction far above the longer one.”
“A steeper decline could be expected on a break below the 1.3400 threshold, with market players targeting then the 1.3250/70 region, where the pair bottomed multiple times between November and February.”
“Gains beyond 1.3520, on the other hand, could see the pair testing the 1.3600 mark"