USD/CAD eyes weakness below 1.3300 ahead of Fed policy and Canada's Inflation

• USD/CAD is likely to display volatile moves as the focus shifts to Fed rate policy.
• Lower consensus for US GDP is weighing pressure on the DXY.
• Canada’s CPI is not displaying exhaustion signals despite the firmer pace of the rate hike by the BOC.

The USD/CAD pair is displaying back-and-forth moves in a narrow range of 1.3270-1.3300 from the past week. The asset has sensed barricades around the critical resistance of 1.3300 and a downside move is highly expected amid an upside momentum loss. But a power-pack volatility period is promised for the market participants as investors are awaiting the release of the interest rate decision by the Federal Reserve (Fed).

A decline in consensus for US Gross Domestic Product (GDP) along with the priority of bringing price stability is impacting the US dollar index (DXY). Fed chair Jerome Powell is bound to keep up the pace of hiking interest rates to tackle the accelerating price pressures. Room for a full percent rate hike is open as the recent reading of the core Consumer Price Index (DXY) at 6.3% has renewed the upside bias for the inflation rate.

What is impacting the DXY now is the decline in US growth projections. Economists at Goldman Sachs have trimmed the US GDP rate for 2023 to 1.1% against the prior forecasts of 1.5%. The ideology behind trimming the growth prospects is the continuation of a higher pace in hiking interest rates in addition to the already tight monetary policy.

On the loonie front, Canada’s inflation data will hog the limelight. Despite the continuation of the rate tightening cycle by the Bank of Canada (BOC), price pressures are not displaying signs of exhaustion. The headline Canada CPI is looking to enter into the 8% territory vs. the prior release of 7.6%. While the core CPI that excludes fossil fuels and food bills will trim to 6% against the former figure of 6.1%.