USD/CAD breaking lower as Loonie strengthens ahead of BoC rate call

• Loonie is lifting against the US dollar as the Greenback recedes in the broader markets.
• BoC interest rate, monetary policy meeting to hold the Loonie's gaze into the mid-week.

The USD/CAD has found a small bounce in the Asia session, trading into 1.2575 after reaching a session low of 1.2560.

The USD slid against the Loonie in Monday's trading, and the trend continued into Tuesday's early session before finding a floor in the Tokyo markets. CAD traders are focusing on the Bank of Canada (BoC) Interest Rate Decision on Wednesday at 14:00 GMT, where Canada's central bank is expected to hold rates steady at 1.25 percent, though the BoC's Rate Statement and Monetary Policy Report will be dropping at the same time.

USD/CAD remains bearish ahead of Bank of Canada

The BoC is widely expected to hold on rates, as the research team at Rabobank highlighted, “We expect the Bank of Canada to leave the policy rate on hold at 1.25% on Wednesday 18th April. 20 of 23 analysts surveyed by Bloomberg expect no change and the OIS market implies an 18% chance of a 25bp hike.” However, James Chen of Forex.com noted that, "with the BoC on a rather clear tightening track towards higher interest rates, much like the Fed, the rate decision and rhetoric surrounding it could have a strong impact on the Canadian dollar. At this time, the market consensus expects the central bank to keep its overnight rate steady at 1.25%, but any hawkish-leaning elements of its statement or within its subsequent press conference could make a significantly positive impact on the Canadian dollar, especially since recent economic indicators have generally been positive. However, if additional concerns about ongoing NAFTA talks and US trade policies are stressed more than might be expected, the Canadian dollar could instead be pressured."

USD/CAD Levels to watch

Further technical notes from James Chen point out the Loonie's bullish stance against the Greenback, stating that, "from a technical perspective, USD/CAD has been entrenched in an extended slide from late March. The current tumble from March’s 1.3123 peak formed a bearish head-and-shoulders pattern which was broken down in early April. Since that breakdown, the currency pair has further broken down below both its 50-day and 200-day moving averages. Within the past week, the currency pair has settled in a consolidation around the 62% Fibonacci retracement of the late-January low to the late-March high, forming a potential bear flag pattern in the process. With any major breakdown and further extension significantly below this level (around 1.2580), further pressure on the US dollar and support for the Canadian dollar could push USD/CAD towards its next major downside target around the 1.2400 support area."