USD/CAD bulls brace for BOC’s interest rate hike amid downbeat oil prices, firmer US Dollar

• USD/CAD grinds near the highest levels in a month, pauses three-day uptrend.
• Mixed sentiment keeps US Dollar on the front foot, WTI crude oil fades bounce off yearly low.
• BOC is expected to announce 0.50% rate hike, clues on the end of tightening cycle will be crucial for clear directions.

USD/CAD grinds higher around 1.3660 even as the Loonie pair traders turn cautious ahead of Wednesday’s Bank of Canada (BOC) Interest Rate Decision. In doing so, the quote remains sidelined after rising in the last three consecutive days to the highest levels in one month.

The reason for the USD/CAD pair’s upside could be linked to the market’s rush towards the US Dollar amid fears surrounding the global economic slowdown. Additionally weighing the Loonie pair could be the downbeat prices of Canada’s key export item, namely WTI crude oil.

That said, WTI crude oil prints a four-day downtrend around the yearly low by flashing 0.30% intraday loss near $74.25 at the latest. The black gold’s weakness is easily traceable to the firmer US Dollar and economic fears.

On the other hand, the US Dollar Index (DXY) extends the week-start recovery from the five-month low as top executives from the major US banks raised fears of a global economic slowdown. Among them were the United States Heads of Goldman Sachs, Bank of America Corp and JPMorgan Chase. Additionally, Bloomberg Economics also forecasted the lowest economic growth since 1993, to 2.4% for 2023.

It’s worth noting that optimism surrounding China challenges the USD/CAD bulls. China is up for conveying more easing to its three-year-old Zero-Covid policy on Wednesday, per Reuters, which in turn could trigger the risk-on mood and weigh on the US Dollar. Beijing’s latest move could be linked to the receding virus infections from the record high, as well as multiple announcements suggesting more unlocking of the virus-hit economy that’s the second biggest in the world.

While portraying the mood, the S&P 500 Futures print mild gains near 3,950 whereas the US 10-year Treasury yields cling to 3.54% mark after the previous day’s downbeat performances of Wall Street and the key Treasury bond yields.

Looking forward, a light calendar and mixed sentiment, not to forget the pre-BOC anxiety, may restrict the USD/CAD moves. However, China's trade numbers and the aforementioned risk catalysts could entertain the traders.

It should be observed that the BOC is widely anticipated to announce 50 basis points (bps) rate hike to its benchmark interest rate. However, the USD/CAD bulls will be more interested in hearing about the end of the tightening cycle.

Also read: Bank of Canada Preview: The end of the tightening cycle is around the corner

Technical analysis

A clear upside break of the 50-DMA and a two-month-old descending trend line, respectively near 1.3570 and 1.3535, keep the USD/CAD buyers hopeful ahead of the key event.