Ella 
In Asia on Wednesday, USD/CAD fluctuated within a narrow range, struggling to continue its strong rebound of about 90 points from multi-day lows overnight. USD/CAD is currently trading just below the mid-range of .3700, the nearly three-week high reached on Tuesday, as traders are eagerly awaiting the Bank of Canada’s policy decision before preparing for the next directional move.
Consumer and business confidence fell and the Bank of Canada is expected to keep its benchmark interest rate unchanged at a 22-year high of 5.0% for a second straight month in October. The Bank of Canada may also appear less firm on the need for more aggressive tightening after signs that inflationary pressures have eased. This, coupled with the recent decline in crude oil prices, is believed to weigh on the commodity-linked Canadian dollar and act as a “tailwind” for USD/CAD.
Key central bank activity risks come as bullish traders appear reluctant to re-establish positions amid subdued U.S. dollar price action. The fall in U.S. bond yields, coupled with the generally positive market risk appetite, failed to help the safe-haven dollar build on its strong rebound from more than a month low the day before. This is therefore seen as a key factor weighing on USD/CAD. However, under the influence of the Federal Reserve’s (Fed) hawkish expectations, the dollar’s downside space is still limited.
The U.S. purchasing managers’ index released on Tuesday showed that the manufacturing business purchasing managers’ index in October stepped out of contraction for the first time in six months, and the services purchasing managers’ index also accelerated slightly. That’s seen as a sign that the U.S. economy remains resilient despite soaring interest rates, which should allow the Fed to stick with its rate-raising cycle to tame inflation. At the same time, this outlook should limit any significant decline in U.S. Treasury yields and benefit U.S. dollar bulls.
The above fundamental background shows that the USD/CAD currency pair has the least upward resistance, and the USD/CAD consolidation decline may still be regarded as a buying opportunity. USD/CAD appears poised to climb further towards challenging the multi-month high hit on October 6 near 1.3785. If follow-through buying occurs, leading to a subsequent move higher above the 1.3800 mark, it would confirm a fresh breakout and open the door for further USD/CAD gains in the near term.
