USD/CAD hovers around 1.3630 after hitting a three-week low, ahead of BoC’s decision

• USD/CAD slumps below its opening price by 0.57% as a Fed pivot narrative weakens the US Dollar.
• Poor US housing data and consumer confidence deterioration, headwinds for the greenback, justify the Fed pivot.
• TD Securities estimates that the Bank of Canada (Boc) will lift rates by 75 bps on Wednesday.

The USD/CAD creeps lower in the North American session as the greenback weakens due to the Federal Reserve’s slowing the pace of tightening, while unfavorable US economic data was headwinds for the US Dollar. Also, US companies reporting better-than-expected earnings keep a risk-on appetite. At the time of writing, the USD/CAD is trading at 1.3613, below its opening price, after hitting a high of 1.3734.

The Canadian dollar appreciates as the BoC’s decision looms

The financial markets narrative shifted since last Friday on news that the Federal Reserve might slow the pace of interest-rate hikes, further clarified by the San Francisco Fed President Mary Daly and the St. Louis Fed President James Bullard, with both saying that 75 bps would not be the standard. At the same time, Bullard added that would be discussed at November’s Federal Reserve Open Market Committee (FOMC).

Data-wise, the US docket featured US housing data, which added to the ongoing economic slowdown in the US. August’s Home Prices rose by 13%, less than July’s 15.6% reading, as reported by S&P CoreLogic Case Shiller. Meanwhile, the Federal Housing Finance Agency featured that home prices in August jumped by 11.9% YoY, below July’s 13.9%.

Meanwhile, the Conference Board (CB) Consumer Confidence dropped to 102.5, below estimates of 105.9, primarily blamed on growing concerns about inflation and a possible recession in 2023.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board, commented that consumers plan to buy a home over the next six months, even though borrowing costs are increasing. She added that “inflationary pressures will continue to pose strong headwinds to consumer confidence and spending, which could result in a challenging holiday season for retailers.”

Aside from this, the Canadian calendar is empty ahead of Wednesday’s Bank of Canada (BoC) monetary policy decision. TD Securities analysts said that they expect the BoC to lift 75 bps in October and a further 25 bps in December and forecast the BoC rates to peak at around 4.25%.

USD/CAD Key Technical Levels