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USD/CAD slips as markets weigh Bank of Canada policy risks
ING does not expect the Bank of Canada to surprise at its next meeting, citing a “high bar” for a material hawkish shift amid benign inflation and looming jobs and USMCA uncertainty.
The Canadian dollar has strengthened in the near term versus the US dollar, dragging USD/CAD down from recent multi-month highs as investors look ahead to an upcoming Bank of Canada policy meeting, FXStreet reported. The move is framed as a corrective pullback after the USD rally appeared stretched versus underlying bond yield signals. Societe Generale said the US dollar's advance against the Canadian dollar has become detached from fixed-income benchmarks, with the pair running into a ceiling around 1.4250 before surrendering ground and testing key support areas. The bank flagged that if structural floors fail, USD/CAD could unwind further, including a potential move toward medium-term moving averages. Technically, FXStreet noted that USD/CAD has retraced toward the upper boundary of a prior consolidation range near 1.4130, which is identified as a potential support level. A break below 1.4130 could open the door to a deeper short-term pullback, Societe Generale warned. On the fundamental side, ING pointed to expectations for Canada’s labor market to show sharp deceleration in net recruitment alongside sticky wage growth pressures. ING argued that even with some revival in hawkish central bank bets and stable oil markets providing temporary relief to the loonie, the bar for a genuinely hawkish BoC turn is high, with benign domestic inflation and downside risks for jobs and activity tied to USMCA uncertainty limiting the scope for sustained CAD appreciation.