USD/CAD holds on to recovery gains ahead of the BOC/Fed plays

  • USD/CAD benefits from WTI weakness and a likely Fed-BOC divergence.
  • Overall risk-off limits the pair’s advances.

With the Oil weakness conquering overall risk-aversion to please the buyers, USD/CAD takes the bids to 1.3090 while heading into the European session on Wednesday.

Although doubts surrounding the US-China trade deal and market’s risk aversion prior to the key data/events keep a lid on the pair’s recovery, the Loonie manages to remain strong amid overall weakness of Oil prices, Canada’s main export item.

Also exerting downside pressure on WTI is expectations of weak growth numbers from the Eurozone and the United States, which in turn enables the USD/CAD pair shrug-off broad risk-off.

Even so, the US 10-year treasury yields decline from a multi-week high of 1.85% to 1.83% whereas Asian stocks turn red.

Looking forward monetary policy meetings by the US Federal Reserve (Fed) and the Bank of Canada (BOC) will be in the spotlight as a likely 0.25% rate cut from the Fed could highlight monetary policy divergence from the BOC as it isn’t expected to change current benchmark rate.

“The Bank of Canada is widely expected to leave rates unchanged at 1.75% in October, putting the focus on the policy statement and updated economic projections. While economic data has been largely upbeat since July MPR, we do not think this is enough for the BoC to change its tune. We look for the communique to maintain the overall tone from July, while economic projections will try and balance a mark-to-market upgrade to 2019 with modest downgrades to 2020,’ says TD Securities ahead of the event.

Technical Analysis

The pair needs strong upside beyond September lows, around 1.3130, to restore the buyer’s confidence in targeting 1.3200, failing to which sellers can keep an eye over 1.3000 round-figure.

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