USD/CAD sees a downside to near 1.3200 ahead of Canada’s Inflation, Fed policy buzz

• USD/CAD is expected to slip further to near 1.3200 amid lower consensus for Canada’s CPI data.
• The Fed would be comfortable in hiking the interest rates by a full percent.
• Oil prices have rebounded firmly on expectations of more stimulus by the Chinese government.

The USD/CAD pair has turned sideways around 1.3250 after a less-confident rebound from 1.3227 in the Tokyo session. On Monday, the asset witnessed a steep fall after failing to sustain above the crucial resistance of 1.3300. The major slipped sharply after investors shrugged off the uncertainty over the monetary policy announcement by the Federal Reserve (Fed) on Wednesday.

As price pressures are too far from the desired rate of 2%, a continuation of the bumper rate hike announcement by the Fed cannot be ruled out. According to the estimates, the Fed will maintain its status quo and will announce a rate hike by 75 basis points (bps) for the third time.

However, the inflation rate is not responding well to the current pace of hiking interest rates, as desired. And, Fed chair Jerome Powell has room to accelerate the pace further due to robust retail demand and a tight labor market. Therefore, investors should be prepared for a higher-than-normal number.

Meanwhile, loonie investors are focusing on the Consumer Price Index (CPI) data. The headline CPI figure is seen lower at 7.3% vs. the prior release of 7.6%. It seems that restrictive monetary policies by the Bank of Canada (BOC) have got elevation and price pressures have started responding now. Also, the core CPI that excludes oil and food prices is expected to decline by 10 basis points (bps) to 6%.

On the oil front, oil prices have rebounded firmly after hitting a low near $82.00 as investors are expecting more stimulus from the Chinese administration. The oil prices have recaptured the critical hurdle of $85.00 and are expected to sustain higher as more stimulus in the Chinese economy will spurt the oil demand. This may strengthen the loonie bulls further.

It is worth noting that Canada is the largest exporter of oil to the US and higher oil prices accelerate fund inflows, which strengthen its fiscal balance sheet further.