USD/CAD approaches 1.3300 as focus shifts to US Inflation and BoC policy

• USD/CAD is marching towards 1.3300 as the USD Index has gauged an intermediate cushion.
• Wednesday’s US CPI data will provide more clarity to investors about interest rate guidance.
• BoC Macklem could raise interest rates by 25 bps for the last time to 5%.

The USD/CAD is marching towards the round-level resistance of 1.3300 in the early New York session. The Loonie asset has picked strength as investors are getting cautious ahead of the United States inflation data and the interest rate decision by the Bank of Canada (BoC).

S&P500 is expected to open on a mildly bullish note considering overnight gains. The US Dollar Index (DXY) is making efforts for extending its recovery to near 102.00. The 10-year US Treasury yields are hovering near 3.97%.

Scrutiny of the US Nonfarm Payrolls (NFP) report released last week strengthened expectations of an interest rate hike by the Federal Reserve (Fed) for its July policy decision. No doubt fresh payroll figures failed to match expectations, but labor cost was extremely upbeat and sufficient to make monetary policy more restrictive.

Going forward, Wednesday’s Consumer Price Index (CPI) data will provide more clarity to investors about interest rate guidance. As per the consensus, annualized headline CPI is expected to decelerate to 3.1% against the former release of 4.0%, and core inflation is seen softening to 5.0% vs. May’s figure of 5.3% in a similar period.

A power-pack action is expected from the Canadian Dollar ahead of the monetary policy announcement by the Bank of Canada (BoC). A poll from Reuters showed that BoC Governor Tiff Macklem could raise interest rates by 25 basis points (bps) for the last time to 5%. Canada’s inflation has softened to 3.4% in May and further policy tightening would maintain immense pressure.