USD/CAD hovers near fresh five-month high around 1.3670 ahead of BoC policy

• USD/CAD trades near a five-month high around 1.3670 as the focus shifts to BoC policy.
• The BoC is expected to keep interest rates steady at 5% amid a soft labor market.
• Investors underpinned the US Dollar as a safe haven despite hopes that the Fed is done with hiking interest rates.

The USD/CAD pair oscillates near a fresh five-month high of around 1.3670 ahead of the interest rate decision by the Bank of Canada (BoC). A power-pack action is anticipated in the Loonie asset after the announcement of the monetary policy decision by BoC Governor Tiff Macklem.

Analysts at CIBC point out that the decline in consumption is likely to hinder any future interest rate hikes by the BoC. Canada’s labor market has been soft as its Unemployment Rate has been increasing for the past three months. Also, Canadian employers have laid off workers two times in the past three months. An absence of strength in the labor market would allow the BoC to keep interest rates unchanged at 5%. However, policymakers would keep room open for further policy tightening.

Later this week, Canada’s labor market data for August will be keenly watched. The Unemployment Rate is seen further rising to 5.6% while a fresh addition of 15K employees is expected vs. retrenchment of 6.4K employees.

Meanwhile, S&P500 futures generated some losses in the London session, portraying caution among market participants due to global recession fears. For the action, investors will focus on the United States ISM Services PMI for August, which will be published at 14:00 GMT. Analysts at TD Securities expect the US ISM Services PMI to hold steady at 52.7 in August.

The US Dollar Index (DXY) remained sideways around 104.50 on Wednesday while the broader bias is strong amid jittery global growth. Investors underpinned the US Dollar as a safe haven despite slower wage growth boosting hopes of a steady interest rate policy by the Federal Reserve (Fed) in September.