Canadian Dollar hit an 8-week low on Friday following an upbeat US Fed rate decision update which saw interest rate remains unchanged while providing a positive forward guidance. The true fact is that Canadian dollar can be viewed as one of the instruments with potential for high level of growth but was denied its place owing to strong US Greenback in broad based market as the pair managed to weather many geo-political events and turbulence in oil market despite being a crude oil linked currency which indicates that Canadian dollar has enough positive influence priced in by investors owing to fact that similar to US Greenback, Loonie also saw its central bank hike the interest rate around 5 times in past 15 months with signals by members of bank during various rate decision update indicating possibility for continued rate hikes in future.
Loonie Supported By Prospect For Multiple Rate Hikes by BOC
Such a prospect gives lot of fundamental support and strength to Loonie to weather bearish influence from crude oil related market fluctuations and US greenback related market disruptions in long term which should mean that the Loonie has capability to hold strong above certain price level. Earlier last week, Bank of Canada Governor Stephen Poloz said that the Bank would continue gradually raising rates from the current 1.75% to a “neutral stance” of between 2.5% and 3.5%. The magic question for investors now is how quickly the BOC will move in this direction. Friday’s run higher failed to hold a daily break above the September high @ 1.3226 and that remains the key resistance level that is keeping the pair from breaking higher today.
But the failure for buyers to retest the key level is more to do with the fact that the loonie remains underpinned on solid rebound in crude oil price following comments of cut back in supply from Saudi Arabia. Saudi Arabia’s decision to cut exports by 500 thousand bpd starting next month has given a good lift to oil with Brent trading 2.1% higher and WTI up by 1.5% currently. In turn, that is helping to put a bid in the loonie on the session as it goes toe to toe with the dollar, crushing the rest of the major bloc. With thin liquidity set to prevail today, the loonie’s performance will very much be tied to the dollar resulting in possible range bound price action across both European and American market hours.
This article was originally posted on FX Empire
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