USD/CAD bounces off 1.2500 amid reduced US holiday trading.

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  • USD/CAD is trading at 1.2520, having rebounded from a test of 1.2500 before the BOS release.
  • Trading conditions have been tentative thus far with US markets closed for MLK Day.

The USD / CAD it recently bounced off 1.2500, a level that coincides with the pair’s 200-day moving average, and traded back at 1.2525, losing 0.2% on the day. In reality, that means the Canadian dollar is the best performing G10 currency on the day, albeit by a small margin, despite the slight pullback from highs in crude oil markets. The Bank of Canada is to release its quarterly Business Outlook Survey (BOS) at 15:30 GMT, which will be seen in the context of the likelihood that the bank will change its interest rate guidance at the next monetary policy meeting on 26 January to signal a possible rate hike in March.

Currency markets may be tentatively buying the Canadian dollar in anticipation of an aggressive BOS, which may explain some of the current CAD outperformance. ING believes that since “today’s survey may not fully reflect worsening demand, as most of the data was collected before the Omicron crisis became severe… the explanatory power of the survey may be somewhat limited, but there are still some points to consider.” These, the bank says, include “inflation expectations (and how many companies still believe high inflation is due to temporary factors), hiring intentions, and CAPEX investment figures (which had been quite strong earlier in the year).”

Market commentators may caution against reading too much into Monday’s very shallow price action due to low volumes and tight liquidity as a result of the US market closings for Martin Luthar King Jr Day. Things will get more interesting for the pair later in the week, with Canadian retail sales and consumer price inflation data for December and the US Fed regional manufacturing surveys for January to be the most followed posts. ING suspects that “external factors” such as oil prices are likely to continue to show “we expect any bounce in USD/CAD to stall around the 1.2600 region this week.”

Technical levels

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