USD/CAD is consolidating near 1.3550 ahead of BoC monetary policy decision

• USD/CAD is trading in a tight range near 1.3550 as investors retreated ahead of the BoC’s monetary policy announcement.
• The BoC is expected to cut interest rates by 25 bps for the third time in a row.
• The US dollar offers a modest correction, with US NFP under the spotlight.

USD/CAD is trading sideways near 1.3550 during European trading hours on Wednesday. The Loonie asset is struggling for direction as investors await the Bank of Canada’s (BoC) interest rate decision, due at 13:45 GMT.

Investors see the BoC cutting its key lending rates by 25 basis points (bps) to 4.25%. This will be the BoC’s third consecutive interest rate cut, which it began in June after gaining confidence that price pressures would return to the bank’s 2% target. The Canadian economy was also struggling to cope with the BoC’s tightening policy on interest rates, which forced them to start cutting high rates.

While the BoC is expected to cut interest rates, investors will focus mainly on interest rate guidance and the economic outlook. Signs of deeper policy easing this year from the monetary policy statement or BoC Governor Tiff Macklem’s press conference or both would weigh heavily on the Canadian dollar (CAD).

Meanwhile, the US dollar (USD) is correcting slightly from fresh two-week highs as US ISM manufacturing PMI data for August showed factory activity contracting at a faster pace than projected. The PMI came in at 47.2, missing estimates of 47.5 but improving from an eight-month low of 46.8.

This week, the major trigger for the US Dollar is the US Non-Farm Payrolls (NFP) data for August due out on Friday. Official employment data will influence market expectations for a Federal Reserve (Fed) interest rate cut this month. The weak pay setting would prompt speculation for a big Fed rate cut, while steady or better numbers would allow the Fed to gradually begin the process of easing policy.