USD/CAD: Loonie Weakens; Awaits Fed, Canadian GDP data

© Reuters.

By Ketki Saxena 

Invesiting.com – The Canadian dollar weakened against its US counterpart today, as risk-aversion remained the dominant theme of the day ahead of a monetary policy announcement from the US Federal Reserve on Wednesday. 

The U.S. central bank is widely expected to hike interest rates by an additional 25 basis points this week, and while investors have been hoping for dovish rhetoric following weak economic data, rhetoric from Fed officials has continued to remain hawkish and call for a terminal rate above 5%. 

Risk-aversion and rising treasury yields boosted the greenback, while pressuring the loonie. The commodity linked Canadian dollar was also pressured by losses in crude as Russian supply remains steady, and investors worry about global demand ahead of rate-hikes expected by the Fed, Bank of England, and European central bank.

On a technical level for the pair, analysts at FX live note, “The price is now approaching the 38.2% of the move down from the January 19 high comes in at 1.3383 followed by the 200 hour MA at 1.33874. Getting back above that 200 hour MA would be needed to increase the bullish bias. The 50% of the same move lower would be another target at 1.34092.”

“The buyers are looking to make a play but they need to get and stay above the 200 hour MA. Failure to do so, and the rise off the recent lows is a nice intraday move, but the sellers remain more in control” 

Following the FOMC meeting on Wednesday, investors wil keep an eye out for a chock full of US economy data, including Friday’s non-farm payrolls.

The Canadian docket meanwhile will include November GDP, (with 0% growth expected, and that reading to deteriorate further in the coming months (a tailwind for the loonie). 

Analysts at TD (TSX:TD) securities note, "USDCAD is anchored by broad USD dynamics but note here that the USD and broader FX complex has seen an increased sensitivity to risk dynamics. With disappointing earnings guidance, there may be room for risk to extend lower.”

"We would pay particular attention to Jan/Feb data as that is likely to motivate asymmetries in curve pricing around the BOC later this year. For now, we think CAD is likely to lag on most crosses."