© Reuters. By Ketki Saxena Investing.com -- The weakened against its US counterpart today, as the greenback was supported by climbing trea
© Reuters.
By Ketki Saxena
Investing.com — The weakened against its US counterpart today, as the greenback was supported by climbing treasury yields, which continue to hover around multi-year highs ahead of a 75 bps hike expected from the US Federal Reserve in early November.
Despite expectations for a 75 bps move Wednesday from the Bank of Canada, headwinds to the loonie remain limited, with the Canadian currency also pressured by broader risk-off impulse and a slide in crude.
At 3:45 p.m up+0.59% in the day’s trading at ET trading at C$ 1.3719 to a US dollar, and with the day;’s range of 1.3606 – 1.3774.
FX Street notes, “The marches firmly amid a risk-off impulse in the FX space due to S&P Global (NYSE:) PMIs hinting that global economies might hit a recession.”
The report showed that on final reading, the US October Flash PMIs confirmed a contraction in the economy for a fourth consecutive month.
The Canadian dollar was also pressured by weakness in crude, and an uncertain outlook for the commodity grappling with worries of a global recession, slowing Chinese demand, and US Strategic Petroleum Reserve releases seeking to counter OPEC+ oil cuts.
However, the main driver for the pair at the moment is the upcoming Monetary Policy announcements expected from the Bank of Canada and the US Federal Reserve.
Despite the 75 bps hike expected from the Bank of Canada, upside to the loonie is expected to be both limited and short-lived as risk aversion remains at the forefront, and as the Fed’s rate hike is set less than a week after the BoC announcement.
Economists at ING note, “The OIS curve currently embeds 70 bps of tightening at the October meeting, meaning that a 75 bps hike should not be enough to drive CAD higher by itself.”
However, should Governor Tiff Macklem reinforce his hawkish tone (which he is expected to do), the loonie could “Trade moderately stronger after the meeting, but the adverse risk environment continues to point to a higher USD/CAD from the current levels, with risks skewed to 1.40 being tested.”
Analysts at FX street expect, the pair to consolidate in the 1.3600-13750 range ahead of the BoC and the Federal Reserve’s monetary policy meeting.
Looking ahead, ING analysts note that “A return to 1.30 is still in our forecast for 2023 as CAD should benefit from low exposure to Russia and China, and may emerge as a market favourite to play pro-cyclical bets.”
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