By Ketki Saxena
Investing.com – The Canadian dollar weakened against its US counterpart today, as risk-aversion was driven by a slew of bearish factors: Fed fears, a cooling US economy, a reigniting of the regional bank crisis, and comments from US Treasury Secretary Janet Yellen that the US could reach its debt ceiling within a month.
Negative sentiment put a damper on the risk-sensitive loonie as regional banks' fears continue to raise the prospect of a full blown banking crisis, with some banks down 30% and the KRE regional bank index lower by 7%.
Expectations of a 25 bps move from the Federal Reserve also weighed on sentiment, although investors have cut bets on the odds for a hike tomorrow, further to round 2 of the regional bank crisis. Fed funds futures market is listening with the implied odds of a hike tomorrow down to 81%, from nearly a 100% chance yesterday.
The pairing back of Fed expectations and a pullback in Treasuries weighed on the greenback relative to a benchmark of major peers, though weakness in the loonie still helped the USD/CAD pair rally.
The commodity linked loonie was also pressured by a slide in crude, down over 5% today as trade remained decidedly risk off.
On a technical level for the pair, analysts at Daily FX note, “Overall, the outlook for USD/CAD has turned more constructive, but to be confident in the bullish thesis, we need to see the pair break above cluster resistance at 1.3650/1.3670, an area where a short-term descending trendline converges with the 61.8% Fibonacci retracement of the March-April pullback. A move above this ceiling would plead in favor of a retest of the psychological 1.3700 level, followed by 1.3865.”
“On the other hand, if sellers regain decisive control of the market and spark a bearish reversal, initial support is located near the 50-day simple moving average. If this floor is breached, however, bears could become emboldened to challenge trendline support crossing the 1.3500 handle. On further weakness, the 200-day simple moving average could become the next downside target.”
Up next for the pair: all eyes on the Fed tomorrow.