The loonie is the best performing major currency so far today
While the move lower in the pair today owes a bit to the earlier bump higher in oil prices, it's more to do with the fact we're seeing some positioning ahead of the Bank of Canada decision to come on Wednesday. The dollar may be gaining against the rest of the major pairs but against the loonie, that hasn't been the case today.
USD/CAD still sits under 1.3100 despite the dollar's advance and last Friday's poor Canadian data but I reckon what we're seeing here is some shorts in the loonie taken off with eyes on the Bank of Canada set to hike rates by 25 bps later this week.
The high posted on Friday also coincides with a test of the 61.8 retracement level @ 1.3132 and we've now fallen back down a little from there. However, the key level to eye for now is the 100-day MA (red line) @ 1.3068. If price holds above that, the bias is still more bullish for the pair.
As for trading the pair into the Bank of Canada decision, a more hawkish tilt by the central bank along with a rate hike will help to pin down the pair and a move back below the 100-day MA would suggest we're headed back towards a test of the 200-day MA (blue line) instead. Should that give way, the supposed tailwinds from the USMCA deal that has dissipated may return back to give the loonie further backing towards a move to the downside.
In the event of a more dovish tilt by Poloz & co, watch for price and whether or not it can stay above the 100-day MA. If it does, there's still some upside left in the pair but I'm viewing it to be rather limited with the September high around 1.3226 being where price action may cap out.
Let's see how things develop over the next few days and we'll then reassess the views above. For now, steady as she goes for USD/CAD with the dollar catching some bids and the loonie looking perky ahead of the Bank of Canada on Wednesday.
