USD/CAD remains confined in a range below 1.2400 mark

The USD/CAD pair lacked any firm directional bias on Monday and remained confined in a narrow trading band, below the 1.2400 mark through the early European session.

The pair, so far, has struggled to gain any meaningful traction and continued with its sideways consolidative price action on the first day of a new week. As investors looked past Friday's disappointing Canadian GDP print for August, a more hawkish Bank of Canada acted as a tailwind for the domestic currency and capped the upside for the USD/CAD pair.

It is worth recalling that the BoC surprised investors last Wednesday by abruptly ending its bond-buying programme and pulling forward its expected timeline for interest rate hikes. The Canadian central bank forecast that inflation is on pace to hit the 2% target in the second or third quarter of 2022, setting the stage for an early interest rate hike move.

That said, a combination of factors continued lending some support to the USD/CAD pair. A softer tone around oil prices held traders from placing aggressive bullish bets around the commodity-linked loonie. Apart from this, a modest US dollar strength further collaborated to limit the downside for the major, at least for the time being.

The USD stood tall near two-and-half-week tops and drew support from growing acceptance that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The speculations were further fueled by Friday's release of the Core PCE Price Index – the Fed's preferred inflation gauge – that held steady near 30-year highs in September.

Hence, the market focus will remain on the outcome of a two-day FOMC policy meeting, scheduled to be announced on Wednesday. In the meantime, traders might take cues from Monday's release of the US ISM Manufacturing PMI. This, along with oil price dynamics, might provide some impetus and allow traders to grab some short-term opportunities around the USD/CAD pair.

Technical levels to watch