USD/CAD spikes higher to 1.3750 as focus shifts to BoC monetary policy

• USD/CAD recovers strongly to 1.3750 as the US Dollar recovers due to higher bond yields.
• Fed Mester said that policymakers need to be “nimble” amid current economic uncertainties.
• The BoC is expected to keep interest rates unchanged amid easing labor demand and price pressures.

The USD/CAD pair reversed losses and climbed back strongly to the crucial resistance around 1.3750 in the early New York session. The Loonie asset revives strongly as the US Dollar Index (DXY) finds support near 106.00.

S&P500 opens on a bearish note amid dismal market sentiment. Quarterly result season and escalating Middle East tensions pushed US equities on the backfoot. The Israeli chief instructed troops for the ground attack on Gaza to dismantle the Palestine military group. This has escalated fears of widening Middle East conflicts.

The US Dollar seems well-supported due to multi-year high long-term US bond yields. The 10-year US Treasury yields rose at a higher level since 2007 around 5%. The plot of higher interest rates for a longer period by the Fed is infusing strength in the bond yields. While more interest rates from Fed are less likely as higher yields are sufficient to ease overall spending and investment.

Cleveland Fed Bank President Loretta Mester said that the Fed is at or near the peak to interest rates. She further added that policymakers need to be “nimble” amid current economic uncertainties.

On the Canadian Dollar front, investors await the interest rate decision by the Bank of Canada (BoC), which will be announced on Wednesday. Easing labor demand and price pressures would allow the BoC to keep interest rates unchanged at 5%. While BoC Governor Tiff Macklem cited that the central bank is not seeing underlying inflation declining to 2%.