USD/CAD steadies above 1.3020 ahead of BOC interest rate policy and US Inflation

• USD/CAD is juggling above 1.3020 on higher expectations for BOC interest rate and US Inflation.
• Escalating recession fears in the global economy have pushed oil prices comfortably below $100.00.
• A higher inflation rate in Canada is bolstering the odds of a 75 bps rate hike by the BOC.

The USD/CAD pair has turned sideways around 1.3020 as investors are focusing on the interest rate decision by the Bank of Canada (BOC) and the release of the US Consumer Price Index (CPI). The asset has faced barricades around 1.3050 twice in the past two trading sessions, which could also be termed as exhaustion signals after a firmer rally from July 5 low near 1.2850.

Considering the market consensus, investors should brace for a bumper rate hike announcement by the BOC. The central bank is expected to elevate its interest rates by 75 basis points (bps). Apart from the Federal Reserve (Fed), no Western central bank has announced a three-quarter-to-a-percent rate hike yet.

The rate of increasing inflation in the loonie zone is extremely high. In May, Canada's inflation soared to 7.7% from the prior release of 6.8%. An increment by 90 basis points in the inflation rate is not a cakewalk situation for the economy. This has elevated the expectations for a rate hike of 75 bps by the BOC.

On the oil front, escalating recession fears have established the oil prices below $100.00 comfortably.  Western central banks are accelerating their interest rates vigorously, which will squeeze out liquidity from the market, and the corporate will be left with costly money to invest. Also, the lockdown worries in China due to the resurgence of Covid-19 have hammered the oil bulls.

Meanwhile, the US dollar index (DXY) is expected to remain subdued ahead of inflation figures. The DXY is expected to regain strength on pre-anxiety of the US Consumer Price Index (CPI). The inflation rate is expected to climb to 8.8% from the prior release of 8.6%. This will strengthen the odds of a consecutive 75 bps rate hike announcement by the Fed.