Ella 
In early trading in Asia on Wednesday, USD/CAD fell and was above the mid-range of 1.3400. Market participants will be closely watching the Bank of Canada’s (BOC) interest rate decision on Wednesday, which is expected to remain on hold. As of press time, USD/CAD is currently trading around 1.3463, with an intraday decline of 0.04%.
The Bank of Canada is expected to keep its key overnight interest rate unchanged at a 22-year high of 5% on Wednesday as stubbornly high inflation pushes back expectations for the central bank’s first rate cut. Traders will get more clues from comments from Bank of Canada Governor Tiff Macklem on the path of interest rates. Meanwhile, rising oil prices amid continued worries about global energy supply could boost the commodity-linked Canadian dollar and be bearish for the USD/CAD currency pair.
On the other hand, the U.S. economy is strong and the Federal Reserve is unlikely to cut interest rates as much as the market expects. Markets now expect the Fed to cut interest rates by 125 basis points in 2024, down from about 175 basis points earlier this month. Key U.S. events this week, including fourth-quarter annualized U.S. gross domestic product and December core personal consumption expenditures price index (Core PCE), will provide some hints on the Fed’s policy path. If economic data remains strong, Fed fund futures volatility could move closer to the prospect of the Fed cutting interest rates only three times this year. This could therefore boost the US dollar.
The Bank of Canada’s monetary policy decision will be in focus on Wednesday. In addition, the US S&P Global Purchasing Managers Index (PMI) report will also be released later in the day. The annual U.S. fourth-quarter gross domestic product rate will be released on Thursday. The core personal consumption expenditures price index (Core PCE) will be released on Friday. These data will provide clear direction for the USD/CAD pair.
