USD/CAD grinds near four-month high below 1.3800 on downbeat Oil, Fed Powell's remarks, BoC eyed

• USD/CAD seesaws around four-month high, remains sidelined after rising the most since late September 2022.
• Hawkish comments from Fed Chair Powell, downbeat Oil price propels Loonie price.
• Expectations of no change in interest rates from Bank of Canada adds strength to the upside momentum.
• Powell’s Testimony 2.0, US ADP Employment Change also appear important for clear directions.

USD/CAD bulls take a breather around the highest levels since early November 2022, following the biggest daily jump in five months. That said, the Loonie pair seesaws around 1.3750 as traders appear cautious ahead of the Bank of Canada (BoC) Interest Rate Decision on Wednesday.

Hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell in his Semi-Annual Testimony to the US Congress propelled the USD/CAD prices late Tuesday. That said, policymaker surprised markets by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March.

With the “higher for longer” Fed rate expectations back on the table, the market’s risk appetite roiled and weighed on the commodity prices, while also fueling the US Dollar Index (DXY). It should be noted that Wall Street closed in the red and the US Treasury bond yields remained firmer with the two-year counterpart flashing the highest levels since 2007.

The risk-aversion wave joined fresh US-China tensions to exert more downside pressure on the WTI crude oil prices, Canada’s key export. It should be noted that the slump in the Oil price ignored a surprise draw in the Weekly Crude Oil Stock details from the American Petroleum Institute (API), an industry source. That said, the WTI crude oil marked the heaviest daily slump in two months the previous day, making rounds to $77.20-30 during the early hours of Wednesday.

Looking forward, the BoC’s pause in the rate hike trajectory will be crucial to watch and can propel the USD/CAD prices further if the inaction is likely to be stretched forward. It’s worth noting, however, that a surprise rate hike won’t be taken lightly and can allow the Loonie pair to consolidate the previous day’s heavy gains.

Also read: Bank of Canada Preview: Canadian Dollar set to climb on hawkish hold, market positioning

Apart from the BoC, Canadian Trade Balance for February and the US ADP Employment Change, the early signal for Friday’s US Nonfarm Payrolls (NFP), will be in focus. Furthermore, the second round of Fed Chair Jerome Powell’s testimony, this time in front of the US House of Representatives Financial Services Committee, will also be crucial to watch for clear directions.

Technical analysis

A one-month-old ascending resistance line joins the overbought RSI (14) line to challenge USD/CAD bulls around 1.3775.