- USD/CAD aims to break above 1.3700 as the US Dollar gains ground.
- The BoC is expected to deliver a dovish interest rate decision on Wednesday.
- Investors see the Fed returning to policy normalization from September.
The USD/CAD pair finds temporary resistance near the round-level barrier of 1.3700 in Tuesday’s New York session. The Loonie asset is poised to deliver more upside as investors expect the Bank of Canada (BoC) to announce a rate-cut decision in its monetary policy meeting on Wednesday.
Factors that have prompted market speculation that the BoC will reduce interest rates in June are the decline in the core Consumer Price Index (CPI) in its 1%-3% band and weak labor market conditions. Canada’s Unemployment rate has jumped to 6.1%, a level significantly higher than the BoC’s mandate of 5%. Also, Average Weekly Earnings slowed to 4.2% in March, which faded fears of persistent inflation.
Unlike the European Central Bank (ECB), BoC policymakers have not communicated their comfort with market speculation for rate cuts in June, which has kept the uncertainty over the policy decision intact.
Meanwhile, the market sentiment is risk-averse as investors turn cautious ahead of the United States (US) Nonfarm Payrolls (NFP) data for May, which will be announced on Friday. Considering negative overnight futures, the S&P 500 is expected to open on a bearish note. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, recovers sharply to 104.30.
The US NFP data will influence market expectations for Fed rate cuts, which investors expect will start at the September meeting.
But before that, the next move in the US Dollar will be guided by the JOLTS Job Openings data for April, which will be published at 14:00 GMT. US employers are estimated to have posted 8.34 million jobs, lower than the prior reading of 8.49 million.
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