USD/CAD juggles around 1.3470 as focus shifts to BOC monetary policy

The USD/CAD pair displays back-and-forth moves around 1.3470 in the early Asian session. The loonie pair has turned sideways as investors are shifting their focus toward the interest rate decision by the Bank of Canada (BOC), due on Wednesday.

Meanwhile, the risk-appetite theme is supporting the Canadian Dollar as the solid United States labor market failed to propel the chances of the current policy restriction pace by the Federal Reserve (Fed). The US Dollar Index (DXY) is highly expected to test Friday’s low around 104.40 amid higher appeal for risk-perceived assets.

S&P500 futures have displayed subdued performance as the upside has been capped by upbeat US Nonfarm Payrolls (NFP) data, while the downside is supported by solid risk appetite.

For further guidance, market participants are keeping an eye on US ISM Services PMI data, which is seen higher at 55.6 vs. the prior release of 54.4. Also, the Services New Orders Index data, which is expected to land higher at 58.5, will hog the limelight. This might fetch US Dollar’s lost ground as robust demand could accelerate inflation guidance from the Fed and its policymakers.

On the Canadian Dollar front, the interest rate decision by the BOC will be of significant importance. Analysts at CIBC point out that the report supports their view that the Bank of Canada will increase rates by 50 bps next week before pausing in 2023. Canada’s inflation remained unchanged at 6.9% in October. Therefore, the absence of exhaustion signals in inflation supports further policy tightening from BOC Governor Tiff Macklem.

On the oil front, OPEC has decided to stick to a two million barrels per day production cut until November 2023. The absence of extended production cuts, as expected by the market participants, has dragged the oil prices dramatically to near $80.00. Meanwhile, easing Covid-19 curbs in China has strengthened oil demand projections. A sell-off in oil prices to near $80.00 has impacted the Canadian Dollar, being a leading exporter of oil to the United States.