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This week, the loonie tried to consolidate but with varying success. It seems that the currency is now at the crossroads striving to begin the bullish trend.
The loonie's chances for upward momentum are relatively high. However, its rally is hindered by a possible spike in crude prices. CAD is known as a commodity currency, meaning its value often correlates to commodity prices. The currency has recently sank noticeably. Later, however, it managed to recover losses. At the start of the week, USD/CAD was moving in the downward trend. On Friday, May 14th, the pair was trading in the 1.2169–1.2170 and attempted to reach its highs.
At the same time, experts recommend buying CAD when the price falls, which happens regularly. UBS Global expects the Canadian currency to advance against the greenback in the next several quarters amid tapering of the QE programme and a spike in crude prices. Last month, the Canadian regulator decided to reduce asset purchases by 5%.
The possibility of monetary policy tightening provides support to CAD along with a weaker US dollar. Last week, the Bank of Canada said it might increase interest rates already at the end of 2022. Capital Economics analysts note that the loonie has become a pressure valve for the regulator. They also expect the core inflation to drop below 2% and interest rates to be raised.
Bank of America strategists believe that CAD may well rise in the coming weeks. In the first quarter of the year, the currency kept pace with its counterparts. In April-May 2021, it grew sharply, while the greenback incurred losses.
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