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Market News USD/CAD juggles at 1.3470 as focus shifts to BOC monetary policy

USD/CAD juggles at 1.3470 as focus shifts to BOC monetary policy

The USD/CAD exchange rate fluctuates at 1.3470 as investors await BOC's monetary policy. Loonie's downside has been limited by sluggish oil prices, while its upside has been limited by the weak US Dollar. Unchanged Canada’s October inflation is projected to maintain BOC’s policy tightening measures.

Alina Haynes
2022-12-05
337

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In the early Asian session, the USD/CAD pair is experiencing back-and-forth movement around 1.3470. The loonie pair has shifted sideways as investors are shifting their focus toward the interest rate decision by the Bank of Canada (BOC), which is scheduled on Wednesday.

 

In the meantime, the risk appetite theme is supporting the Canadian Dollar as the robust U.S. labor market has failed to increase the likelihood of the Federal Reserve's current policy tightening pace (Fed). The US Dollar Index (DXY) is extremely likely to hit Friday's low around 104.40 as risk-perceived assets gain favor.

 

S&P500 futures have showed moderate behavior as the upside has been contained by buoyant US Nonfarm Payrolls (NFP) data while the downside is supported by solid risk appetite.

 

Market investors are keeping a watch on the US ISM Services PMI data, which is anticipated to be higher at 55.6 than the previous release of 54.4. In addition, the Services New Orders Index data, which is anticipated to increase to 58.5, will occupy the spotlight. This could recoup some of the ground lost by the US dollar, as robust demand could prompt the Fed and policymakers to accelerate their inflation forecasts.

 

In terms of the Canadian dollar, the Bank of Canada's interest rate decision will be crucial. The report supports the CIBC analysts' prediction that the Bank of Canada will raise rates by 50 basis points next week before halting in 2023. In October, Canada's inflation rate stayed constant at 6.9%. Therefore, the absence of exhaustion signals in inflation supports BOC Governor Tiff Macklem's continued policy tightening.

 

On the oil front, OPEC has resolved to maintain a production limit of two million barrels per day until November 2023. In the absence of continued production cuts, as anticipated by market players, oil prices have plummeted to roughly $80 per barrel. In the meantime, China's relaxation of Covid-19 restrictions has boosted oil consumption forecasts. A sell-off in oil prices to approximately $80.00 has hurt the Canadian Dollar, being a leading exporter of oil to the United States.

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