In the Asian session on Wednesday (December 7), USD/CAD rose slightly to 1.3652, an increase of 0.01%. The Bank of Canada is set to raise rates by another 50 basis points, but weak execution remains a risk on two counts. First, given the sequential slowdown in underlying inflation, the Bank of Canada may see sufficient reason to raise rates by only 25 basis points. Second, we think the central bank is likely to pause rate hikes soon. ”
The latest from the Bank of Canada:
The biggest risk for the loonie this week is that the Bank of Canada has signaled that its interest rate cycle is either over or will be paused sooner than financial markets expect, leading to downward revisions to expectations implied by bond and interest rate derivatives markets . That could be mildly negative for the Canadian dollar and support sterling against the Canadian dollar, which has proven less vulnerable to dollar strength this year.
USD/CAD technical analysis:
USD/CAD traded higher around 1.3660, although traders turned cautious against the loonie ahead of Wednesday’s Bank of Canada (BOC) interest rate decision. As such, quotes will remain on the sidelines after rising for the past three consecutive days to their highest level in a month.