CAD/USD maintains its positive momentum ahead of the BoC and important events

This week’s major events are anticipated to have an impact on the USD/CAD pair. For the day, the pair has moved between a low of 1.3581 and a high of 1.3628, increasing by 0.14%. At the time of writing, the price of the pair is 1.3609.

It is going to be a big week ahead while:

i) Investors await Jerome Powell’s testimony and the publication of nonfarm payrolls on Friday, and the Bank of Canada Rate Decision will be the main release for the Canadian dollar this week.

ii) On Wednesday, the BoC is anticipated to maintain the overnight rate at 4.50% for the entire year 2023. While the BoC’s policy statement is anticipated to acknowledge robust job growth, it could also note that inflation continues to subside with the outlook evolving as expected, which is crucial for the central bank’s conditional pause. A flat print on Q4 GDP has reduced some of the uncertainty surrounding this meeting.

Important events for the US dollar

Financial market watchers are anticipating the Fed Chair Powell’s speech as well as the jobs report to be able to estimate how much further interest rates will be raised by the central bank.

The US Dollar index, DXY, which compares the performance of the US dollar against six other currencies, was last down 0.2% on the day at 104.30, having recovered from a session low of 104.16 but still being well below the 104.69 highs after the US dollar experienced its first weekly loss since January last week.

Investors had the impression that the central bank might have to return to half-point increases, but this was the case. The futures indicate a 76% probability that the Fed will boost interest rates by 25 basis points at its meeting on March 22 and a 24% probability that they will do so by 50 bps.

The US Dollar’s future depends on what Powell says and what the jobs report reveals in this regard. Powell will have the opportunity to set the course for the Fed’s interest rate policy this year. He could 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 February data

The impact of the warm weather and significant seasonal adjustments in January fade, growth in nonfarm payrolls could decline to 220k.

Overall, leading data point to continued tightness in the labour market despite improving growth expectations. Following the release of the jobs report, the Fed still has the chance to direct the markets because the FOMC blackout period doesn’t start until Saturday, March 11.