USD/CAD remains limited below 1.2390

The US dollar opened the week on a moderately positive tone, and extended its rebound from Friday’s low at 1.2335 to hit resistance again at 1.2385/90 area. The pair has retreated to 1.2360 afterward and remains practically flat on the day.

Sideways trading ahead of key macroeconomic data

The major currency crosses are trading within previous ranges on Monday, with the US dollar slightly firmer against its main rivals in a choppy trading session. Investors remain reluctant to place significant bets ahead of the release of US GDP data and the monetary policy decisions of the European Central Bank, Bank of Japan, and the Bank of Canada.

In absence of relevant macroeconomic releases today, persisting inflation concerns and a moderate pullback on US Treasury yields, are keeping US dollar bulls in check. The 10-year bond has ticked down to 1.63% on Monday from multi-month highs at 1.68% last week which is weighing on demand for the greenback.

Regarding the Canadian dollar, rising expectations that the Bank of Canada will be forced to start hiking rates ahead of schedule are supporting the CAD, which has appreciated more than 3% in the last five weeks. In this context, some market voices, anticipate that the BoC might start raising the tone of its message after this week’s meeting, which might give a fresh boost to the loonie.

USD/CAD: Scope to a slide to 1.22 –MUFG

From a technical perspective, the FX Analysis Team at MUFG observes the CAD supported by fundamentals, which could drive the pair towards 1.2200 in the near-term: “The Canadian rate market has moved sharply over the past month to price in both earlier BoC hikes and a larger hiking cycle. Weekly QE purchases are currently running at CAD2 B, and the BoC could announce plans to formally bring an end to QE this year. To reinforce upward momentum for the CAD, the BoC will also have to drop forward rate guidance (..)The next key support area comes in at around the 1.2200-level.”

Technical levels to watch