USD/CAD skids below 1.2620 oil prices surge, BOC interest rate decision eyed

• USD/CAD has tumbled below amid the boiling oil prices.
• Investors await monetary policy announcement by the BOC.
• An interest rate hike by 50 bps is expected from the BOC.

The USD/CAD pair has witnessed a steep fall after failing to sustain above 1.2650 on Tuesday. Loonie bulls have been strengthened on a sharp rebound in the oil prices and a minor correction in the US dollar index (DXY).

The oil prices have bounced back firmly after hitting a low of $92.65 on Monday. The black gold has overstepped $100.00 after the lockdown curbs eased in China. Earlier, the Chinese administration imposed a lockdown in Shanghai to contain the epidemic of Covid-19. This posed a threat to aggregate demand in China due to restrictions on men, materials, and machines in one of the most populated cities. However, the ease in lockdown measures has wobbled the fears of slippage in oil demand.

Also, the oil prices have shrugged off the impact of additional oil supply by the US administration and the International Economic Agency (IEA). The collective effort of the US and IEA will add 240 million barrels to the global oil supply in the next six months. Canada, being the largest exporter of oil to the US, carries a positive relationship with the oil prices.

Meanwhile, the DXY has plunged to 100.24 at the press time post the hangover of juggernaut US Consumer Price Index (CPI).  A higher US CPI print at 8.5% has triggered the possibility of a 50 basis point (bps) interest rate hike by the Federal Reserve in May.

Going forward, loonie bulls will dance on the monetary policy dictation by the Bank of Canada (BOC) on Wednesday. The street is expecting a 50 bps interest rate hike by the BOC, which will support restricting the price pressures in Canada.