USD/CAD climbs back above 1.3700 despite poor US data

• USD/CAD trims some of last Friday’s losses, up 0.46% on Monday.
• Worse-than-expected US economic data and a risk-off impulse in the FX complex bolstered the US Dollar (USD).
• Wednesday’s Bank of Canada (BoC) meeting to cap the Canadian Dollar (CAD) losses.

The USD/CAD marches firmly amid a risk-off impulse in the FX space due to S&P Global PMIs hinting that global economies might hit a recession, while the greenback recovered some losses, trading positive as delineated by the US Dollar Index (DXY), up 0.08%, at 111.961. At the time of writing, the USD/CAD is trading at 1.3705, gaining 0.44%.

US S&P Global PMIs underpinned the USD, amid a risk aversion in the FX markets

S&P Global reported that on their final readings, US October’s Flash PMIs confirmed that the economy is contracted for the fourth consecutive month. The Manufacturing and Services components of the Composite index missed estimations and trailed September’s figures. Consequently, the S&P Flash Composite Index fell to 47.3, from 49.5 in September, and less than estimates of 49.3, as the economic downturn gathered momentum, “while confidence deteriorated sharply,” as S&P Global Chief Business Economist Chris Williamson said.

Albeit the data was negative for the US Dollar (USD),  the USD/CAD dipped below 1.3700 before resuming its previous uptrend and reclaiming the figure, reaching a daily high of 1.3774.

Aside from this, the Canadian docket is pretty light, ahead of Wednesday’s Bank of Canada’s (BoC) monetary policy meeting, with most economists expecting a 50 bps lift, though last week’s Consumer Price Index (CPI) rise to 6.9% YoY, less than the previous month’s reading, above estimates, shifted previous forecasts.

TD Securities analysts commented that consensus points to a 50 bps lift to 3.75%, “but there is a heavy skew towards 75 bps from those who submitted forecasts post-CPI, and markets are pricing ~67bps of tightening.” TDS expects that the BoC would likely maintain a hawkish tone in its statement while acknowledging slower economic growth and revising lower inflation estimates for 2022.

Given that Fed officials reiterated that the US central bank would continue to tighten, though it opened the door for a rhythm of slower rate hikes, therefore, the USD/CAD might consolidate in the 1.3600-13750 range, ahead of the BoC and the Federal Reserve’s monetary policy meeting. The BoC’s decision will be featured on October 26, while the Fed on November 2.

USD/CAD Key Technical Levels