USD/CAD Price Analysis: Refreshes 5-month highs near 1.3670 ahead of BoC policy decision

• USD/CAD recovers to a 5-month high near 1.3670 as the BoC is expected to keep interest rates unchanged.
• The BoC may keep interest rates unchanged at 5% as hiring and consumer spending slowed due to rising inflation.
• The USD/CAD pair rallied strongly after picking up good buying interest near the 20 day EMA.

The pair USD/CAD posted a new five-month high at 1.3670 ahead of the Bank of Canada’s interest rate decision, due to be announced on Wednesday. Investors anticipate the policy divergence between the Federal Reserve (Fed) and the BoC to remain stable as the latter is expected to keep monetary policy unchanged.

BoC Governor Tiff Macklem may keep interest rates unchanged at 5% as hiring and consumer spending slow due to heightened inflationary pressures.

S&P 500 futures posted nominal losses in the European session, indicating a cautious open after a long weekend. The Dollar Index (DXY) posts a new five-month rise to 104.70 as US recession fears recede due to cooling inflation and stable labor markets. US 10-year Treasury yields rise to around 4.23%. For the New York session, a bullish movement of the USD index is anticipated, since the US markets will open after the long weekend.

USD/CAD extends its recovery and marks a new five-month high at 1.3670. The pair rallied strongly after picking up decent buying interest near the 20 day EMA around 1.3520. The Relative Strength Index (RSI) (14) is trading in the 60.00-80.00 bullish range, showing no signs of oversold or divergence.

To continue higher, the pair needs to decisively clear the resistance at the round level of 1.3700, which would open the doors for further rally to the March 27 high at 1.3746 and the March 24 high around 1.3800.

On the other hand, a break below the 1st September low around 1.3490 would drag the asset towards the 15th August low around 1.3440, followed by the 7th July high at 1.3387.

USD/CAD daily chart