USD/CAD drops from weekly highs ahead of the BoC’s decision

• USD/CAD retraces from daily highs on the Bank of Canada’s monetary policy decision looming.
• In the last couple of weeks, upbeat US economic data reinforces the economy is stronger than the GDP contraction in the second quarter.
• On Wednesday, the Bank of Canada (BoC) is expected to hike rates by 75 bps.

The USD/CAD trims some of its Monday’s gains, edged slightly lower by some 0.08% after upbeat US economic data reinforced the scenario of the Fed’s tightening 75 bps in the September meeting. Nevertheless, the market’s reaction was limited due to expectations of the Bank of Canada hiking rates ahead of the Fed’s September meeting.

The USD/CAD extended its losses after hitting a daily high at 1.3170, though it erased those gains post-US economic data release, with the spot price stabilizing at current price levels. At the time of writing, the USD/CAD is trading at 1.3124.

USD/CAD trims some of its Monday’s gains on the BoC monetary decision looming

On Tuesday, the US economic calendar featured the US ISM Non-Manufacturing PMI for August, which exceeded estimations of 54.9, coming at 56.9 vs. 56.7 in the previous month’s reading. The same report showed the Prices Paid Index slowing to 71.5 from 72.3, while New Orders ticked up to 61.8, higher than 59.9 in July.

In the meantime, the US Dollar Index, a gauge of the buck’s value against a basket of six currencies, march firmly above the 110.000 mark, at 110.195, up by 0.54%, underpinned by higher US Treasury bond yields. The US 10-year benchmark note rate sits at 3.322%, up by ten bps, the highest level since June 2022.

Elsewhere, the Bank of Canada is expected to hike rates by 75 bps in September 7 meeting. The Bank of Canada Governor Tiff Macklem clarified that the central bank is focused on getting rates “slightly above” the neutral rate, where monetary policy neither stimulates nor weighs on the economy. Analysts estimate that the BoC would likely pause, after its anticipated hike, after last week’s GDP release suggested that the economy is cooling faster than expected.

What to watch

The Canadian economic docket will feature the Bank of Canada monetary policy decision on Wednesday. On the US front, Cleveland’s Fed President Loretta Mester will cross newswires.

USD/CAD Key Technical Levels