USD/CAD steady, Bank of Canada expected to pause again

• Three Fed members will deliver public statements on a very light data calendar today
• On Wednesday, the Bank of Canada is expected to pause, and US inflation is projected to fall to 5.2%
• USD/CAD is almost unchanged, trading around 1.3500

The Canadian dollar is almost unchanged, trading at 1.3501 in Europe. With no Canadian events and no tier-1 releases out of the US, we can expect a quiet day for USD/CAD. The markets will be listening closely as Fed members Goolsbee, Harker and Kashkari will speak. Wednesday should be much busier for the Canadian dollar, with key releases in both Canada and the US. The Bank of Canada will make a rate announcement and the US releases the inflation report for March.

Bank of Canada likely to hold rates

The Bank of Canada meets on Wednesday and is widely expected to pause rates for a second straight time, leaving the cash rate at 4.50%. Governor Macklem announced a “conditional pause” on rates, saying that the central bank would pause if warranted by the data. The key to the Bank’s rate path is inflation, which the central bank is committed to wrestling back to the target of 2%.

The battle against inflation is moving in the right direction, with CPI falling to 5.2% in February, down from 5.9% a month earlier. The employment market remains robust, with the economy adding 34,700 jobs in March, up from 21,800 in February. A rate hike would help cool the labour market but would dampen growth and hurt consumers and businesses which are struggling under the weight of high interest rates. With a pause being the likely decision, the tone of the rate statement could affect the movement of the Canadian dollar on Wednesday.

US inflation

The US releases March inflation on Wednesday. This will be the last CPI release prior to the Fed’s May 3^rd meeting and will play a key factor in the Fed’s rate decision. Currently, the markets have priced in a 25-basis point hike at 67%, according to the CME Group, and an unexpected inflation reading will very likely lead to the repricing of rate hike bets. Inflation fell from 6.4% to 6.0% in February and is expected to ease to 5.4% in March.

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USD/CAD Technical

• USD/CAD tested support at 1.3486 earlier today. Below, there is support at 1.3397
• 1.3566 and 1.3629 are the next resistance lines

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