USD/CAD Forecast: Move beyond 1.3700 remains on the cards, BoC decision awaited

The USD/CAD pair is seen oscillating in a narrow trading band through the Asian session on Wednesday and consolidating just below a one-month high touched the previous day. A combination of supporting factors, meanwhile, continues to act as a tailwind for spot prices and supports prospects for a further near-term appreciating move. Crude oil prices languish near the YTD low fears that a deeper global economic downturn will dent fuel demand. This, in turn, undermines the commodity-linked Loonie and acts as a tailwind for the major amid a modest US Dollar strength.

Friday's better-than-expected US NFP report, especially wage growth data, pointed to a further rise in inflationary pressures. Furthermore, the upbeat US ISM Services PMI released on Monday suggested that the economy remained resilient despite rising borrowing costs. The incoming positive economic data fuels speculations that the might lift rates more than recently projected and continues to lend support to the greenback. The markets, however, seem convinced that the US central bank will slow the pace of its rate-hiking cycle and have been pricing in a 50 bps lift-off in December.

This, along with the latest optimism over the easing of COVID-19 restrictions in China, keeps a lid on the safe-haven buck. Traders also seem reluctant to place aggressive bullish bets around the USD/CAD pair and prefer to wait for the Bank of Canada (BoC) meeting on Wednesday. The Canadian central bank is scheduled to announce its policy decision later during the early North American session and is expected to hike interest rates by 50 bps. The focus, meanwhile, will be on the accompanying rate statement, which will influence the domestic currency. Apart from this, the USD and oil price dynamics should contribute to producing meaningful trading opportunities around the major.

Technical Outlook

From a technical perspective, the overnight sustained close above the 1.3600 mark and a subsequent move beyond last week's swing high, around the 1.3645 area, favours bullish traders. Moreover, oscillators on the daily chart have just started gaining positive traction and support prospects for a further near-term appreciating move. Hence, some follow-through strength towards reclaiming the 1.3700 mark, en route to the next relevant hurdle near the 1.3740 zone, looks like a distinct possibility.

On the flip side, any meaningful pullback now seems to find decent support near the 1.3600 mark. A further decline is more likely to attract fresh buyers and remain limited near the 1.3555-1.3550 area. Failure to defend the said support levels might prompt aggressive technical selling and make the USD/CAD pair vulnerable. Spot prices might then accelerate the fall towards the 1.3500 psychological mark before eventually dropping to the 1.3425-1.3420 confluence. The latter comprises an ascending trend line extending from the November monthly swing low and the 100-period SMA on the 4-hour chart, which should act as a strong near-term base.