USD/CAD hovers around 1.3375 ahead of the BoC’s decision

The USD/CAD erases some of its earlier losses, climbs toward the 1.3370 region after briefly touching its daily low of 1.3342, ahead of a crucial week for the Canadian Dollar (CAD), with the Bank of Canada (BoC) setting rates for the first time in 2023. In addition, a late US Dollar (USD) bid keeps the USD/CAD from breaking to test the 200-day EMA. The USD/CAD is trading at 1.3375.

USD/CAD is almost unchanged ahead of the Bank of Canada's meeting

Traders mood remains upbeat amid the lack of Fed speakers due to the blackout period, ahead of the first Federal Reserve (Fed) meeting in 2023. The Canadian economic docket featured housing data, with the New Housing Price Index MoM edging to 0%, above estimates for a 0.2% contraction, while YoY eased from 4.1% to 3.9%. The Conference Board (CB) Leading Index in the US dropped to -1%, beneath the -0.7% estimates.

“The US LEI fell sharply again in December - continuing to signal recession for the US economy in the near term,” Ataman Ozyildirim, the Conference Board’s senior director for economics, said in a statement.

Aside from this, the BoC monetary policy decision on Wednesday could keep the USD/CAD pair subdued. Analysts expect a 25 bps rate hike, to 4.50%, with a good portion of them estimating that the BoC would pause.

TD Securities Analysts estimate the BoC would hike rates by 25 bps, adding, “We expect this to be the final move in the BoC’s tightening cycle, while markets are only pricing a small probability (20%) of further hikes.” It should be said that for the first time, the Bank of Canada would release monetary policy minutes, which according to analysts, “will help restore credibility lost last year amid soaring inflation and encourage out-of-the-box thinking,” according to Reuters.

USD/CAD Technical Analysis

Therefore, the USD/CAD would likely remain subdued around the 1.3316-1.3424 area, which sits the 100-day Exponential Moving Average (EMA). The Relative Strength Index (RSI) is almost flat at bearish territory, suggesting that sellers remain on the sidelines, bracing for the BoC’s decision, while the Rate of Change (RoC) suggests bears are stepping in. If the USD/CAD holds below 1.3400, that would pave the way for further downside. Key support lies at 1.3300, followed by the 200-day EMA at 1.3249.