USD/CAD extends recovery to near 1.3440 as BoC’s interest rate policy comes into picture

• USD/CAD had extended its recovery above 1.3440 amid strength in the US Dollar.
• The overall market mood is cautious despite the improving United States-China trade relationship.
• A continuation of a steady interest rate policy is anticipated by the BoC.

The USD/CAD pair has stretched its recovery to near 1.3440 in the early New York session. The Loonie asset rebounded firmly from near the round-level support of 1.3400 amid strength in the US Dollar Index (DXY). The USD Index has sensed marginal selling pressure after printing a fresh day high to near 104.40.

S&P500 is expected to open on a flat note considering cues from overnight performance. A volatile action is widely anticipated amid voting for a US debt-ceiling raise in Congress. The overall market mood is cautious despite the improving United States-China trade relationship. Reuters reported on Tuesday, China's Vice Foreign Minister and a senior US State Department official had a frank, constructive, and fruitful communication on promoting Sino-US relations and properly managing differences.

A solid recovery from the USD Index has supported the US Treasury yields. The yields offered on 10-year US government bonds have climbed above 3.7%.

Going forward, the interest rate decision by the Bank of Canada (BoC) will remain in focus. BoC Governor Tiff Macklem is expected to keep interest rates steady at 4.5% as Canada’s inflationary pressures are steadily decelerating. Canada’s inflation has already slowed to 4.4% from its recent high of 8.1%. Therefore, the BoC has the luxury of keeping interest rates steady.

On the oil front, oil prices have found intermediate support near $70.00 after a vertical sell-off. More downside in the oil price seems solid as global central banks are preparing for a fresh interest rate hike cycle. It is worth noting that Canada is the leading exporter of oil to the United States and a rebound in the oil price might support the Canadian Dollar.