USD/CAD looks downside below 1.2720, oil sustains above $115.00, BOC in focus

• USD/CAD is bracing a sheer downside move below 1.2718 ahead of hawkish BOC.
• Canada’s CPI at 6.9% is compelling a jumbo rate hike by the BOC this week.
• The DXY is likely to dance to the tunes of the US NFP.

The USD/CAD pair is oscillating in a narrow range of 1.2718-1.2728 in the early Asian session. The loonie bulls remained favored last week after the asset tumbled below the critical support of 1.2765 on Friday. A downside move below 1.2765 has opened doors for 1.2700 as technical downside will be accompanied by the interest rate decision from the Bank of Canada (BOC), which is due on Wednesday.

Citing the inflationary pressures in the loonie region, the BOC is expected to remain extremely hawkish in its monetary policy announcement. The April inflation rate landed at 6.9%, above the forecasts of 6.7% and more than a two-decade high. Mounting price pressures are impacting the real income of the households and eventually, the BOC is left with no other choice than to dictate a rate hike.  As per the market consensus, the BOC is expected to elevate the interest rates by 50 basis points (bps). This may be a consecutive jumbo rate hike as the BOC also announced a half-a-percent rate hike in April.

On the oil front, boiling oil prices are supporting loonie. Mounting supply worries due to expectations of an embargo on Russian oil from Europe have kept the oil prices in the grip of bulls. Apart from that, the demand is expected to revive in China as the Chinese administration is expected to lift complete Covid-19 restrictions in Shanghai. The black gold is expected to remain established above $115.00 ad higher oil prices will fetch more funds into the loonie’s economy.

On the dollar front, the US dollar index (DXY) is consolidating below 101.70. The DXY will remain highly uncertain this week ahead of the release of the US Nonfarm Payrolls (NFP). The US economy may report an addition of 310k jobs in the labor market against the prior print of 428k.