BOC

USD/CAD signals a potential reversal as the Canadian dollar gains ahead of today’s inflation report. While markets expect a slight pickup in inflation, any surprise could impact the pace of future rate cuts by the Bank of Canada. Traders are watching key support levels for signs of a continued downturn.

USD/CAD attempts to extend the advance following the Bank of Canada (BoC) rate cut as it trades to a fresh monthly high (1.3869).

The BoC is expected to boost its efforts in normalizing monetary policy, with the central bank anticipated to reduce the benchmark interest rate by 50bp in September to 3.75% from 4.25%.

Today, we will have the ADP private payrolls data and the latest ISM services PMI, and the Bank of Canada's rate decision, all coming ahead of the official US jobs report on Friday. These macroeconomic events could set the dollar’s trend for the coming days , putting the USD/CAD forecast under the spotlight.

Tensions surrounding the Middle East has unsettled markets. US indices such as the S&P 500 are on track for their worst week of the year, crude oil reached a fresh YTD high and the risk-off sentiment was even enough to knock gold from its record. Traders therefore need to be on guard for headline risks surrounding the Middle East next week, alongside the usual bouts of economic data and central bank meetings.

EUR/USD is on track for its smallest weekly range since September 2021, although 1-week implied volatility levels that we could see more action next week.

The Bank of Canada (BOC) are expected to hold rates at today’s meeting, given GDP unexpectedly contracted in Q2. Still, implied volatility has spiked higher for USD/CAD. Perhaps the BOC pause will not be as dovish as expected, Fed members tout a hold or the rise of bond yields (and therefore the US dollar) lose steam. If so, USD/CAD may be better for short bets beneath the April highs.

The USD/CAD outlook is subject to a major revision this week with investors looking forward to the release of US CPI and a rate decision from the Bank of Canada.

The update to Canada’s Consumer Price Index (CPI) may prop up USD/CAD as the report is anticipated to show a further slowdown in inflation.

After a combined 425 basis points worth of hikes, the BOC has already signaled it would pause tightening to let the economy digest impact of previous hikes.

The Canadian GDP was much worse than expected, however the GDP Price Deflator was also weak.

The just-released Consumer Price Index (CPI) in Canada rose 5.9% year-over-year in January...what does that mean for USD/CAD?

The bank's latest forecast shows the annual rate of inflation slowing to around 3% by the middle of 2023, and reaching 2.5% by the fourth quarter.

Will USD/CAD continue its recent trend lower despite a dovish BoC?

A 25-basis-point hike is expected

USD/CAD falls ahead of the BoC rate decision. EUR/GBP rises ahead of German IFO business climate data.

Market pricing and the consensus among economists firmly points towards a 25bp hike from the BOC tomorrow.