USD/CAD declines towards monthly lows at 1.2630 ahead of BOC policy, oil falls

• USD/CAD is eyeing a re-test of its monthly lows at 1.2629 as investors await BOC monetary policy.
• The BOC is expected to elevate its interest rate by 50 bps.
• Oil prices faced selling pressure at around $120.00.

The USD/CAD pair is displaying a downside move in the Asian session, following the bearish sentiment on a broader note. The asset has recorded a five-day losing streak and its continuation looks likely if the asset drops below Tuesday’s low at 1.2629.

The loonie bulls are outperforming against the greenback as investors are awaiting the announcement of the interest rate decision by the Bank of Canada in the American session. As per the market consensus, an interest rate hike by 50 basis points (bps) is expected from the BOC. This will stretch the BOC’s interest rate officially to 1.5%. Canada’s annual inflation rate rose to 6.8% in April, which is compelling the BOC to continuously elevate the interest rates to avoid the inflation mess.

On the oil front, the black gold faced barricades around $120.00 and slipped to near $115.00, however, the overall trend is still bullish amid renewed supply concerns. The European Union (EU) Leaders Summit resulted in a prohibition of 90% of oil imports from Russia by the end of Calendar Year (CY) 2022. The announcement was highly expected by the market participants as Russia’s invasion of Ukraine was a punishable act and the EU wanted to isolate Russia badly.

On the dollar front, the US dollar index (DXY) witnessed a steep fall after failing to sustain above 102.00 on Tuesday. The asset displayed a reversal after hitting a fresh monthly low of 101.30 on expectations of a potential outcome from the Biden-Powell meeting to contain the price pressures. However, the unavailability of any material outcome brought offers in the DXY. This week, the US Nonfarm Payrolls (NFP) will be the key event for the FX domain. The US NFP is seen at 320k against the prior print of 428k.