The central bank is widely expected to keep the overnight target rate at 0.25% while the tone of the statement could be a bit hawkish
The Loonie suffered decent losses on Tuesday, having dipped to nearly two-week lows. After a two-day rally, the pair has regained losses witnessed during a couple of weeks. USDCAD climbed to the 1.3235 region and finished the day near the upper end of the extended range.
There are several reasons behind the resurgent weakness in the pair. First, the greenback is rising across the board amid risk aversion and several risks surrounding its counterparts, from the looming central banks’ meeting to Brexit-related uncertainty. US stocks saw another sell-off overnight, with the Nasdaq entering the correction territory, suggesting risk sentiment will stay negative at least in the near term.
Also, the commodity currency was hit by an aggressive sell-off in the oil market. Brent crude derailed the $40 handle for the first time since late-June and extended losses to three-month lows around $39.30 amid risk aversion, slow recovery in energy demand, the rising dollar, US-China tensions, and Saudi Arabia’s decision to cut its export prices.
Today, traders will shift focus to the Bank of Canada monetary policy meeting. The central bank is widely expected to keep the overnight target rate at 0.25% while the tone of the statement could be a bit hawkish. In this scenario, USDCAD could retreat from local highs and probably even retest the 1.30 handle for the first time since September 1. Of note, the pair could correct lower if there is no more intense risk aversion across the global financial markets.
In the near term, the pair will follow the overall investor sentiment, US dollar dynamics, risks in the oil market. So far, these drivers suggest that the prices will continue to climb north. A break above the 1.3250 resistance area will pave the way toward 1.3320. In case of a downside correction, the initial significant support is now expected at 1.3160.