- USD/CAD pulls back from daily highs ahead of Bank of Canada monetary policy decision.
- In the last two weeks, the encouraging economic data from the US reinforce the strength of the economy in the face of the contraction of the GDP in the second quarter.
- On Wednesday, the Bank of Canada is expected to raise rates by 75 basis points.
The USD/CAD trimmed part of Monday’s gains and dipped slightly 0.08%, after encouraging US economic data reinforced the scenario of a 75 basis point Fed tightening at the September meeting. However, market reaction was limited due to expectations that the Bank of Canada will raise rates ahead of the Fed’s September meeting.
USD/CAD extended losses after hitting a daily high of 1.3170, although it erased those gains following the release of US economic data, and spot price stabilized at current levels. At the time of writing, the USD/CAD is trading at 1.3124.
USD/CAD trims part of Monday’s gains on impending BoC currency decision
On the US economic calendar on Tuesday, the US non-manufacturing PMI for August was released, beating estimates of 54.9, coming in at 56.9 versus 56.7 in the previous month’s reading. The same report showed that the prices paid index fell to 71.5 from 72.3, while new orders rose to 61.8, up from 59.9 in July.
Meanwhile, the US Dollar Index, which measures the value of the dollar against a basket of six currencies, is running firmly above 110,000 at 110,195, up 0.54%, supported by rising bond yields. of the US Treasury. The interest rate on US 10-year bonds stands at 3.322%, up 10 basis points, the highest level since June 2022.
Separately, the Bank of Canada is expected to raise rates by 75 basis points at its meeting on September 7. The Governor of the Bank of Canada, Tiff Macklem, clarified that the central bank is focused on achieving rates “slightly above” the neutral rate, in which monetary policy neither stimulates nor weighs on the economy. Analysts reckon the BoC is likely to pause after its anticipated rally after last week’s GDP release suggested the economy is cooling faster than expected.
What to watch out for
The Canadian economic docket will include the Bank of Canada’s monetary policy decision on Wednesday. In the United States, Cleveland Fed President Loretta Mester will make a statement.
USD/CAD Key Technical Levels
Source: Fx Street
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