Investing.com - The Canadian dollar weakened against its U.S. counterpart on Tuesday, as risk-off sentiment and lower crude oil price pressured the risk-sensitive, commodity linked loonie.
However, the Canadian dollar’s move remained muted ahead of a Bank of Canada interest rate decision on Wednesday.
Markets widely expect the BoC to leave its benchmark interest rate on hold at a 22-year high of 5% on Wednesday, and begin cutting rates in June.
Analysts at MUFG note that “Declining inflation and weaker consumer spending in Canada should allow for the BoC to commence cutting rates by June”.
Relative to the Fed, they note that “While the timing of starting monetary easing may differ slightly from the US, we see the extent of easing in 2H 2024 being similar.”
In terms of the impact on the Canadian dollar, MUFG analysts expect that the general lockstep moves of U.S. and Canadian monetary policy easing mean that the loonie will have limited upside potential, as compared to other G10 currencies, vs. the U.S. dollar.
On a technical level for the USD/CAD pair, TradingCandles analyst Fawad Razaqzada notes that “More recently, the USD/CAD has started to chip away at resistance around the 1.3530-1.3550 area, which suggests that rates are gearing up for a potential breakout above the December high of 1.3620.”
“The line in the sand now is at 1.3440ish, which was the last low before the latest rally. A potential move below that level would invalidate the bullish trend for the USD/CAD.”
Further impetus for the pair will come from the Bank of Canada decision and U.S. NFP data due tomorrow, as well as testimony from Fed Chair Jerome Powell this week.