USD/CAD remains in bullish territory awaiting BoC and key events

• USD/CAD will depend on a number of key events this week.
• Bank of Canada, Non-Farm Payrolls and Federal Reserve Chairman Jerome Powell in the spotlight.

USD/CAD is up 0.11% and has ranged from a low of 1.3581 to a high of 1.3628 so far this day. It’s going to be a big week ahead as a) investors await Federal Reserve Chairman Jerome Powell’s testimony and non-farm payrolls to be released on Friday and b) the Bank of Canada rate decision will be released most important for the CAD during the week.

We expect the Bank of Canada to hold the overnight interest rate at 4.50% on Wednesday, and to hold it through all of 2023,” TD Securities analysts said in a note. While we expect the statement to acknowledge the strong job growth, it should also signal that inflation continues to decline and the outlook is evolving as expected, which is crucial for the Bank’s conditional pause,” the analysts added.

Key events for the US dollar

As for the US dollar, financial market watchers are waiting to gauge how much more the Federal Reserve will raise interest rates based on information that could emerge from testimony from Fed Chairman Powell and jobs data. . The US Dollar Index, DXY, which measures the performance of the US currency against six other currencies, last fell 0.2% on the day to 104.30, after clearing a session low of 104.16 but well below the 104.69, maximum of the past week, after the weekly loss that occurred for the first time since January, last week. All this despite the belief among investors that the central bank may have to go back to half a point hikes. However, futures imply a 76% chance that the Fed will raise interest rates by 25 basis points at its March 22 meeting, with a 24% chance of a 50 basis point hike.

In this sense, what Powell says and what the employment report shows will be the key to the dollar. Powell will have the opportunity to signal the direction of the Fed’s rate policy for the year. We expect him to indicate that further tightening is necessary, but to remain rather vague on the final rate. He, too, is likely to point to his concerns about the strength of the recent data, but the Fed wants to see confirmation in the February data before acting,” analysts at TD Securities noted.

As for non-profit payrolls, analysts at Danske Bank expect growth to moderate to 220,000 after the effects of warm weather and strong seasonal adjustments in January wear off. Overall, leading indicators suggest that labor market conditions have remained tense amid recovering growth prospects. The FOMC tightening period will begin on Saturday, March 11, so the Fed still has the option to guide markets after the jobs report.”