USD/CAD remains capped below 1.3600 ahead of BoC rate decision
- USD/CAD loses ground around 1.3575 despite the rebound of USD.
- US ISM Services PMI arrived at 52.7 in November vs. 51.8 prior, above the market consensus.
- Bank of Canada (BoC) to hold interest rate steady at 5.0% at its December meeting.
- US ADP Employment Change, BoC monetary policy meeting will be in the spotlight on Wednesday.
The USD/CAD pair snaps the two-day winning streak during the early European session on Wednesday. The pair remains capped under the 100-day Exponential Moving Average (EMA) around 1.3600. The pair attracts some sellers despite the recovery of the US Dollar (USD) Index. USD/CAD currently trades near 1.3575, down 0.12% on the day.
The US data on Tuesday revealed that the ISM Services PMI came in at 52.7 in November from 51.8 in the previous reading, better than the market expectation of 52.0. Meanwhile, the US JOLTS labor data on Tuesday was worse than expected. The US job openings data, as measured by the Job Openings and Labour Turnover Survey (JOLTS) fell by 617,000 to 8.733M in October. This report indicated that US labor market conditions are loosening further.
The Federal Reserve (Fed) maintains its stance while saying that the possibility of additional policy tightening cannot be ruled out. However, market participants believe that the Fed is done with the hiking cycle and will begin cutting the rate in March next year. This, in turn, might cap the upside of the US Dollar and act as a headwind for the USD/CAD pair.
On the Loonie front, the Bank of Canada (BoC) will announce its interest rate decision on Wednesday. BoC governor Tiff Macklem said that higher interest rates have cooled the overheated economy and taken the steam out of inflation. Macklem believes the central bank may have done enough to tame inflation but BoC will raise rates again if inflation persists. The markets anticipate the BoC to hold the interest rate steady at 5.0% at its December meeting.
Meanwhile, a rebound in oil prices might lift the commodity-linked Loonie, as the country is the leading oil exporter to the US.
Market players will monitor the US ADP Employment Change and Unit Labor Costs (Q3). The attention will shift to the BoC interest rate decision later on Wednesday. These events could trigger volatility in the market and give a clear direction to the USD/CAD pair.