USD/CAD loses ground above the mid-1.3800s, Canadian GDP, PMI data eyed

The USD/CAD pair trades with modest intraday losses above the mid-1.3800s during the Asian trading hours on Monday. The softer note of the US Dollar (USD) weighs on the pair. Investors will focus on the highly-anticipated Federal Reserve (Fed) interest rate decision on Wednesday, with no change expected. The pair currently trades near 1.3862, down 0.06% on the day.

Fed is anticipated to hold the interest rate steady at the end of its two-day meeting on Wednesday, even though the Core US Personal Consumption Expenditure Index (PCE), the Fed’s preferred gauge for inflation remains well above the 2% target rate.

Following its last meeting in September, the Fed said that recent economic data suggested economic activity is growing at a solid pace. Job growth has slowed in recent months but remained robust. However, Fed Chair Jerome Powell said that inflation is still too high. This raises the expectation of an additional rate hike at the December meeting. The higher-for-longer rate narratives in the US could lift the USD and act as a tailwind for the USD/CAD pair.

On Friday, the Core US Personal Consumption Expenditure Index (PCE) eased to 3.7% YoY in September from the previous reading of 3.8%, in line with market expectations. The monthly Core PCE grew by 0.3% versus 0.1% prior. Furthermore, September's headline PCE Price Index came in at 3.4% YoY versus the expected 3.4%.

On the Loonie front, a decline in oil prices might limit the upside of the commodity-linked Loonie as the country is the major oil exporter to the US. The Bank of Canada (BoC) decided to hold the rate unchanged last week at 5%. BoC Governor Tiff Macklem said that the decision to maintain the rate was because the central bank wanted to allow monetary policy time to cool the economy and relieve price pressure. He added that the central bank will continue to assess whether monetary policy is sufficiently restrictive.

Moving on, the Canadian Gross Domestic Product for August is due on Tuesday. Later this week, the Canadian S&P Global Manufacturing PMI for October and the US ISM Manufacturing PMI will be released on Wednesday. The attention will shift to the Fed policy decision on late Wednesday. On Friday, the employment data from both Canada and the US will be due. These events could trigger the volatility in the market and give a clear direction to the USD/CAD pair.