Canada’s dollar looks cautious ahead of BoC meeting

The USD/CAD pair is trading at 1.3266 at the time of writing. Canada’s dollar remains cautious ahead of the Bank of Canada’s (BoC) interest rate decision on Wednesday. Core inflation has fallen significantly in Canada, while it remains stubbornly high in the US, making USD/CAD bullish. The technical picture is mixed but slightly bullish after breaking above the key 1.3270 high. The USD/CAD pair is trading in the upper 1.32s during the US session.

The Core Consumer Price Index (CPI) drives interest rate decisions, and Canada’s core inflation has fallen to 3.7% from 4.1% in the last reading, reducing pressure on the BoC to raise rates.

A decision to leave rates unchanged would be negative for Canadian dollar and positive for USD/CAD, as the Federal Reserve is almost certain to raise rates at its July 26 meeting due to the 5.3% Core CPI inflicted on the US.

The BoC is prone to surprising markets, but analysts at the National Bank of Canada predict a hike at Wednesday’s meeting, which could benefit from the advantage of surprise and potentially cause USD/CAD to sell off substantially.