USD/CAD snaps four-day winning streak ahead of BOC

USD/CAD drops to 1.3595, down 0.13% on a day, during the pre-European trading on Wednesday. The loonie pair drops for the first time in five days ahead of the Bank of Canada’s (BOC) monetary policy report. Even so, the quote remains near the highest in two weeks as the US dollar bounces off monthly low.

Commodity currencies, like the Canadian dollar, picked up bids during the early Asian session after news from Moderna, followed by comments from US President Donald Trump, confirmed nearness to the coronavirus (COVID-19) vaccine. Recent statistics from the US, Australia and Tokyo have been worrisome and updates suggesting the cure gains welcome. However, America’s shunning of Hong Kong’s special trading status and anticipated retaliation from China kept the moves capped afterward.

Market’s risk-tone sentiment remains mildly positive with the US stock futures adding nearly 1.0% while Asia-Pacific shares, ex-China, following the suit. Additionally, US 10-year treasury yields add 1.6 basis points to extend the previous day’s recovery moves past-0.63%.

Talking about oil, Canada’s main export item, WTI has been trading in a choppy range around $40.60/50 after stepping back from a four-day high of $41.08 before a few hours. On the other hand, the US dollar index (DXY), a gauge of the greenback versus the major currencies, bounces off the lowest since June 11 to 96.21 by the press time. With no major moves in WTI confronting US dollar pullback, amid risk-on mood, traders are struggling for a clear direction.

As a result, today’s BOC meeting will be the key despite widely anticipated status-quo. The reason is the quarterly rate statement and press conference by Governor Tiff Macklem and Deputy Governor Carolyn A. Wilkins. Traders will look for mildly bearish comments to extend the latest pullback of USD/CAD, failing to do so can accelerate the moves to attack late-June tops. TD Securities said, “We do not expect any change in policy which will leave the focus centered around messaging and forecast updates. The latter will be key to the overall tone while the statement should emphasize heightened uncertainty and disinflationary pressures amid a widening output gap. Manufacturing sales for May and existing home sales for June round out the calendar; TD looks for manufacturing sales to rebound by 9.0% m/m, in line with consensus, while existing home sales are expected to surge 65% m/m by the market.”

Technical analysis

Unless providing a daily closing below 21-day EMA, currently near 1.3595, sellers are less likely to revisit and sloping trend line from June 10, at 1.3525 now. On the contrary, the pair’s successful trading above 50-day EMA level of 1.3665 could quickly pierce 1.3700 round-figures to aim for June 26 top near 1.3715.