The USD/CAD pair continued its bullish momentum, trading higher for the third consecutive day and touching a level not seen since April 2020 during the Asian session on Tuesday. While it remained just below the 1.4200 psychological mark, the pair’s upward trajectory reflects a confluence of factors favoring the US Dollar against the Canadian Dollar (CAD). Traders, however, appear cautious ahead of Wednesday’s critical economic events, including the Bank of Canada (BoC) interest rate decision and the US Consumer Price Index (CPI) report.
Market sentiment around the CAD remains bearish, weighed down by expectations of a larger-than-expected rate cut by the BoC. These expectations have been amplified by the recent rise in Canada’s unemployment rate for November, suggesting weaker economic momentum. Additionally, the downward trend in Crude Oil prices, a key export for Canada, has put further pressure on the commodity-linked CAD, providing additional tailwinds for the USD/CAD pair.
Meanwhile, the US Dollar’s strength is tempered by muted demand ahead of the US CPI data. Last week’s Nonfarm Payrolls (NFP) report reaffirmed market bets on a December Fed rate cut, keeping US Treasury bond yields near October lows and limiting significant gains for the greenback. However, expectations of a less aggressive easing stance from the Federal Reserve are likely to cushion any USD declines, indirectly supporting USD/CAD’s bullish bias.
All eyes now turn to Wednesday’s BoC and US CPI announcements, which are expected to define the near-term directional movement of the pair. A dovish surprise from the BoC, combined with robust US inflation data, could push the USD/CAD pair decisively past the 1.4200 resistance level, marking a potential continuation of its multi-year highs.
