USD/CAD improves to near 1.3560 despite higher Crude oil prices, BoC policy decision eyed

USD/CAD retraces recent losses, reaching higher to near 1.3560 during the Asian session on Monday. This retracement occurred despite higher Crude oil prices, which typically support the Canadian Dollar (CAD) due to Canada's status as a major oil exporter. This, in turn, could limit the advances of the USD/CAD pair.

West Texas Intermediate (WTI) oil price edges higher to near $79.50 per barrel on Monday. The increase in Crude oil prices followed the Organization of the Petroleum Exporting Countries and its allies (OPEC+) decision to extend voluntary oil output cuts of 2.2 million barrels per day (bpd) into the second quarter, aligning with market expectations.

Canada's S&P Global Manufacturing Purchasing Managers Index (PMI) experienced a slight improvement, rising to 49.7 from the previous 48.3, although it remained below the 50.0 threshold which indicates contraction in the sector.

Looking ahead, the Bank of Canada (BoC) is scheduled to announce its latest interest rate decision next Wednesday. Market expectations suggest that the central bank will maintain its current interest rate at 5.0%.

The US Dollar Index (DXY) hovers around 103.80, as it seeks direction amidst improved US Treasury yields. However, the US Dollar (USD) faced downward pressure due to the contraction observed in the United States manufacturing sector in February.

The US ISM Manufacturing PMI for February dropped to 47.8 from 49.1, significantly missing the market expectation of 49.5. Additionally, the US Michigan Consumer Sentiment Index declined to 76.9 in February, falling below the market expectation of remaining unchanged at 79.6.

Despite these concerning data points, Federal Reserve (Fed) officials have maintained a cautious stance and have not signaled any immediate interest rate cuts. This stance has provided some support for the US Dollar.

Investors are closely monitoring upcoming economic data releases, including the ISM Services PMI data, ADP Employment Change, and Nonfarm Payrolls for February, to gauge the overall health of the US economy and potential future monetary policy decisions by the US Federal Reserve.