USD/CAD juggles around 1.3650 as BOC reaches near interest rate peak

• USD/CAD is oscillating around 1.3650 as BOC’s interest rate peak and weak oil prices have capped the upside.
• The downside in the Canadian Dollar is being supported by investors' improved risk appetite.
• Growing signs of recession in the United States have impacted oil prices.

The USD/CAD pair is displaying back-and-forth moves in a narrow range of around 1.3650 in the early Tokyo session. The Loonie asset rebounded in the New York session after sensing strength near the round-level support of 1.3600. The move was against the risk-appetite theme in the global market but the ‘less-hawkish’ sound adopted by Bank of Canada (BOC) Governor Tiff Macklem justified the same.

Meanwhile, the US Dollar Index (DXY) is displaying signs of volatility contraction and is oscillating in a 105.00-105.10 range. S&P500 remained sideways as the upside was capped by soaring recession fears and the downside was restricted after the risk-on impulse resurfaced. The US Treasury bonds witnessed a sheer demand from the market participants as a higher interest rate peak by the Federal Reserve (Fed) alarmed recession fears. The 10-year US Treasury yields have plunged to near 3.42%.

Meanwhile, Loonie investors are not capitalizing on the risk-appetite theme as interest rates by the BOC have reached near their peak. On Wednesday, the Canadian central bank announced a 50 basis points (bps) rate hike consecutively for the second time to 4.25%, the highest since 2008. The move was in line with the expectations of the street.

The absence of a statement dictating ‘more hikes are needed further’ indicated that the bigger rate hike regime by the BOC is over and interest rates have reached near neutral one. It is high time that the central bank will evaluate the efforts made by BOC policymakers.

On the oil front, fresh annual lows by West Texas Intermediate (WTI) at $72.00 led by growing signs of recession in the United States have impacted the Canadian Dollar. It is worth noting that Canada is a leading exporter of oil to the US and weaker oil prices impact Canada’s fiscal budget.