Canadian Dollar Remains Steady Ahead of Bank of Canada Rate Announcement and US Inflation Report

The Canadian dollar is holding steady at 1.3501 in Europe, with no significant Canadian events and no tier-1 releases from the US expected for the day. However, the market will be closely watching speeches from Fed members Goolsbee, Harker, and Kashkari. Wednesday is expected to be a busier day for the Canadian dollar as both Canada and the US release key reports.

Bank of Canada Rate Announcement

The Bank of Canada will hold its rate announcement on Wednesday and is anticipated to pause rates for a second time, leaving the cash rate at 4.50%. Governor Macklem announced a “conditional pause” on rates and said that the central bank would only pause if data warranted it. The key factor in the Bank’s rate path is inflation, which the central bank is working to bring back to the target of 2%.

The fight against inflation is progressing in the right direction, with CPI falling to 5.2% in February from 5.9% the previous month. Although the employment market remains strong, a rate hike could help cool the labor market but may dampen growth, which could negatively impact consumers and businesses struggling with high interest rates. With a pause expected, the tone of the rate statement could affect the movement of the Canadian dollar.

US Inflation Report

The US will release its inflation report for March on Wednesday, which will be the last CPI release before the Fed’s May 3rd meeting and will play a critical role in the Fed’s rate decision. The markets have priced in a 25-basis point hike at 67%, according to the CME Group, and an unexpected inflation reading could lead to the repricing of rate hike bets. Inflation is expected to ease to 5.4% in March, after falling from 6.4% to 6.0% in February.

USD/CAD Technical Analysis

USD/CAD tested support at 1.3486 earlier in the day. The next support levels are at 1.3397, while resistance lines are at 1.3566 and 1.3629.