USD/CAD declines towards 1.2900 as investors await BOC and US Inflation

• USD/CAD oscillates below the critical support of 1.2960 as BOC is expected to hike rates by 75 bps.
• Canada’s lower Unemployment Rate may support the BOC to announce the bumper rate hike.
• This week, the US CPI will be of utmost importance, which is seen at 8.7%.

The USD/CAD pair is auctioning below the critical support of 1.2960 as investors are supporting loonie against the greenback on upbeat Canada’s Unemployment data. On a broader note, the pair has declined gradually after re-testing the critical resistance of 1.3083 on Wednesday.

The jobless rate in Canada landed at 4.9%, lower than the estimates and the prior release of 5.1%.  This has strengthened the Bank of Canada (BOC) to elevate its interest rates to a decent extent, which is due on Wednesday. As per the market consensus, the BOC may announce a rate hike by 75 basis points (bps). The occurrence of the same will drive the interest rates officially to 2.25%.

Soaring price pressures in the Canadian economy are demanding a bumper rate hike announcement by BOC Governor Tiff Macklem. The inflation rate in Canada was recorded at 7.7% for May, extremely higher than the print of 6.8% recorded in April.

On the dollar front, the US dollar index (DXY) has displayed a minor rebound at the open. The DXY will remain on the tenterhooks ahead of the US Consumer Price Index (CPI), which will release of Wednesday. A preliminary estimate for US inflation is 8.7%, 10 bps higher than the prior print of 8.6%. A higher inflation print will bolster the odds of an extreme hawkish stance by the Federal Reserve (Fed) in its July monetary policy meet.