USDCAD remains sideways below 1.3500 as investors await US midterm elections

• USDCAD is juggling below 1.3500 as investors have shifted their focus toward US mid-term elections.
• The risk profile is extremely solid and is keeping the DXY on the back foot.
• The speech from BOC Macklem will dictate the likely monetary policy action ahead.

The USDCAD pair is displaying back-and-forth moves in a narrow range below the psychological resistance of 1.3500 in the early Asian session. The asset has turned sideways as investors are awaiting the US mid-term elections, which will set the ground ahead of the US Consumer Price Index (CPI) data.

The risk profile is certainly solid as S&P500 displayed handsome returns on Monday while the US dollar index (DXY) was being punished as odds for the continuation of 75 basis points (bps) rate hike pace won’t sustain for longer. The DXY has dropped to near 110.00 and a majority win of the Democratic will strengthen the positive risk profile further.

Meanwhile, the returns on US government bonds have not faced any pressure and are continuing their gradual upside. The 10-year US Treasury yields have been recorded at 4.225, at the press time.

The contest among 435 seats of the House of Representatives and 34 seats of the Senate will determine the extent of the power of the Democratic party. A loss in mid-term elections for the Democratic party would cripple the power of US President Joe Biden as the passing of bills will also demand approval from Republicans. This could also bring a sense of political instability.

A note from ANZ Bank states that “We regard a Republican-controlled Congress as the most likely scenario (55%). Not far behind, at 41%, is a split Congress, with a Republican-led House and a Democrat Senate.”

On the Loonie front, investors are awaiting the speech from Bank of Canada (BOC) Governor Tiff Macklem, which will provide cues about the likely monetary policy action ahead. Meanwhile, the oil prices have corrected to near $91.00 after a smart recovery as a commitment to the no-tolerance Covid-19 approach by the Chinese authorities has raised concerns over oil demand ahead.