USD/CAD holds in bullish grounds ahead of BoC and key events

• USD/CAD will depend on a number of key events this week.
• Bank of Canada, Nonfarm Payrolls and Federal Reserve's chair Jerome Powell in the spotlight.

USD/CAD is up 0.11% and has traveled between a low of 1.3581 and a high of 1.3628 on the day so far. It is going to be a big week ahead while a) investors wait on testimony by Federal Reserve Chair Jerome Powell and Nonfarm Payrolls due on Friday and b) the Bank of Canada Rate Decision will be the major release for CAD for the week.     

''We expect the BoC to hold the overnight rate at 4.50% on Wednesday, and maintaining that hold for all of 2023,'' analysts at TD Securities said in a note. '' A flat print on Q4 GDP has removed some of the uncertainty from this meeting; while we expect the statement to acknowledge robust job growth, it should also note that inflation continues to subside with the outlook evolving as expected, which is crucial for the Bank's conditional pause,'' the analysts added.

Key events for the US Dollar

As for the US Dollar, financial market observers are waiting to be able to gauge how much more the Federal Reserve will raise interest rates with the information that could come of Fed Chair Powell's testimony and the jobs data. The US Dollar index, DXY, which measures the performance of the US currency against six others, was last down 0.2% on the day at 104.30, having lifted off a session low of 104.16 but well below the 104.69 highs following last week's weekly loss that was made for the first time since January, last week. This was despite a belief among investors that the central bank might have to switch back to half-point rises. However, the futures imply a 76% chance the Fed will raise interest rates by 25 basis points at its meeting on March 22, with a 24% chance of a 50 bps increase.

In this regard, what Powell says and what the jobs report shows will hold the key for the US Dollar. Powell will have the chance to signal the direction of Fed rates policy for the year. ''We expect he'll indicate more tightening is needed but to remain rather vague regarding the terminal rate. A concern about recent data strength likely will also be flagged but the Fed wants to see confirmation in Feb data before acting,'' analysts at TD Securities said. 

As for Nonfarn Payrolls, the analysts at Danske Bank are expecting growth to moderate to 220k after the effects of warm weather and heavy seasonal adjustments in January fade. ''Overall, leading indicators suggest that labor market conditions have remained tight amid a recovering growth outlook. The FOMC blackout period will begin on Saturday 11th of March, so Fed still has the option to guide the markets after the Jobs Report.''