USD/CAD falls back from 1.3300 as BoC sets to tighten policy further

• USD/CAD has retreated from 1.3300 as BoC is expected to raise interest rates to 5%.
• Upbeat Canada’s labor market data has propelled hopes of one more interest rate hike from the BoC.
• Going forward, US CPI data will be keenly watched.

The USD/CAD pair has attracted offers after a brisk pullback move to near the round-level resistance of 1.3300 in the European session. The Loonie asset is under pressure as the recovery move in the US Dollar Index (DXY) is short-lived and the Canadian Dollar is gaining strength amid expectations of a continuation of the rate-hiking spell by the Bank of Canada (BoC).

S&P500 futures have extended losses in London, following negative cues sensed on Friday after upbeat wages data. US equities faced a sell-off as solid wage figures drummed one more interest rate hike from the Federal Reserve (Fed) in July.  The overall market mood is quite risk-averse as fears of a recession in the United States have elevated.

The US Dollar Index (DXY) has retreated after facing stiff barriers near 102.50. Further pressure would drag the USD Index to near the immediate support of 102.20. After US Nonfarm Payrolls (NFP) data, investors have shifted their focus to the Consumer Price Index (CPI) data, which will release on Wednesday at 12:30 GMT.

As per the consensus, monthly headline CPI elevated at a higher pace of 0.3% vs. the prior pace of 0.1%. Annualized headline inflation is expected to soften to 3.1% against the former release of 4.0%.

Meanwhile, the Canadian Dollar will dance to the tune of the interest rate decision by the Bank of Canada (BoC). BoC Governor Tiff Macklem is expected to push interest rates higher to 5% as labor market data has turned out extremely persistent. Investors should note that the BoC has already raised interest rates to 4.75%.

Statistics Canada reported fresh additions of 59.9K employees vs. the estimates of 20K. In May Canadian labor force witnessed a lay-off of 17.3K employees. The Unemployment Rate increased to 5.4% vs. the estimates of 5.3% and the prior release of 5.2%. Investors should note that BoC Governor Tiff Macklem has already raised interest rates to 4.75%.