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The USD/CAD buyers regain control and lift the pair above 1.3000, eyeing the 1.30776 level. Lower risk appetite is impacting investors’ calculations ahead of the US CPI to keep the USD/CAD upward pressured.
The Bank of Canada (BoC) is expected to hike rates by 75 bps, as shown by STIRs futures. The USD/CAD pair snaps three days of consecutive losses and bounces off last week’s lows around 1.2930s due to a stronger dollar, bolstered by investors positioning ahead of a US inflation reading expected to remain hot and China’s coronavirus reemergence, particularly in Shanghai, threatening to derail the global economic growth.
After reaching a daily high at around 1.3030s, 100 pips up from the daily lows, the USD/CAD is trading at 1.3002, gaining some 0.51% during the North American session. USD/CAD historically rises on risk-aversion and falling oil prices.
Stocks slid while the dollar remains in the driver’s seat, as shown by the US Dollar Index, rallying more than 1%, printing a fresh YTD high at around 108.211, while US Treasury yields fell on safe-haven appetite. Those factors, alongside falling US crude oil prices with WTI trading at $103.68 BPR, are a headwind for the Canadian dollar, which trimmed last week’s losses since last Wednesday.
In the week, the Canadian economic calendar illustrated that the Bank of Canada (BoC) would have its monetary policy meeting, where the bank is expected to hike rates from 1.50% to 2.25%, a 75 bps. Money market futures STIRs, priced in a 99.8% chance of a 0.75% rate increase, while odds of a 1% upward move sit at 74.9%.
The BoC Business and Consumer Surveys provided new evidence of rising inflation expectations, further cementing the case for a 75 bps rate hike. Additionally, With the economy operating in excess demand and inflation running well above the target, we see little room for nuance at the upcoming meeting and look for a broadly hawkish tone.
On the US front, the US economic calendar is packed, reporting that US inflation readings for consumers and producers, with both numbers estimated at the top of the range. Late in the week, US Retail Sales are expected to be higher, and the University of Michigan Consumer Sentiment would be in the spotlight after June’s figures triggered a market shift and weighed on the Federal Reserve rate hike decision, according to some Fed speakers.
