USD/CAD extends recovery above 1.3650 as DXY recovers losses, BOC policy eyed

• USD/CAD has accelerated to near 1.3680 amid a stellar recovery in the DXY.
• The 10-year US Treasury yields have extended their losses to near 4.17% amid soaring market mood.
• The BOC may trim the extent of the rate hike to 50 bps this week.

The USD/CAD pair sensed buying interest after dropping to near the round-level support of 1.3600 in early Tokyo. The loonie bulls have retreated after the US dollar index (DXY) defended the intervention rumors of the Bank of Japan (BOJ) recovered its entire intraday losses. The asset has extended its gains to near 1.3680.

The DXY has recaptured its intraday high at 112.26 and is expected to behave critically ahead as the returns on US government bonds have dropped sharply. The 10-year US Treasury yields have extended their losses by 4.17% after displaying jaw-dropping gains to near 4.34% on Friday. Market sentiment is extremely cheerful and S&P500 futures are holding their gains.

On Monday, the US S&P PMI data will be keenly watched. The Manufacturing PMI is expected to decline to 51.2 vs. the prior release of 52.0 while the Services PMI may drop to 49.2 from 49.3 reported earlier.

This week, the interest rate decision from the Bank of Canada (BOC) will determine the further direction of the asset. A Reuters poll on projections for BOC’s interest rate claims that BOC Governor Tiff Macklem will announce a rate hike of 50 basis points (bps). The extent of the rate hike seems lower than their current pace of hiking interest rates. It is worth noting that the headline inflation rate in Canada was recorded at 6.9% for September.

On the oil front, oil prices have dropped below the crucial support of $85.00 amid mounting global recession fears. In addition to the BOC, the BOJ and the European Central Bank (ECB) will announce their monetary policies. The BOJ may continue its ultra-loose stance while the ECB could tighten its monetary policy. An expectation of a fresh rate hike spell is weighing pressure on oil prices.