USD/CAD holds below the 1.3470 mark, eyes on BoC rate decision

• USD/CAD edges lower to 1.3463 amid the modest decline of US Dollar.
• Bank of Canada is expected to hold interest rate steady at its January meeting.
• Federal Reserve (Fed) is unlikely to cut rates as aggressively as the market expects.
• Traders will focus on the BoC monetary policy decision and US PMI report on Wednesday.

The USD/CAD pair loses ground above the mid-1.3400s during the early Asian trading hours on Wednesday. Market participants will closely monitor the Bank of Canada (BoC) interest rate decision on Wednesday, which no change in policy expected. At press time, USD/CAD currently trading around 1.3463, down 0.04% on the day.

The BoC is anticipated to maintain its key overnight rate unchanged at a 22-year high of 5% on Wednesday as stubborn inflation has markets delaying the timeline for the first rate cut. Traders will take more cues from BoC Governor Tiff Macklem's comments on the rate trajectory. Meanwhile, the higher oil prices due to concerns over global energy supplies might lift the commodity-linked Loonie and acts as a headwind for the USD/CAD pair

On the other hand, the US economy is robust, and the Federal Reserve (Fed) is unlikely to cut rates as aggressively as the market expects. The market now expects 125 basis points of easing in 2024, down from around 175 basis points earlier this month. The key US events this week, including the Q4 US Gross Domestic Product Annualized and the December Core Personal Consumption Expenditures Price Index (Core PCE) will offer some hints about the path of Fed policy. If the data remain strong, there is room for Fed funds future pricing to converge towards the FOMC’s projections for only three cuts this year. This, in turn, might lift the Greenback. 

The BoC monetary policy decision will be in the spotlight on Wednesday. Also, the US S&P Global Purchasing Managers Index (PMI) report will be due later in the day. On Thursday, the US GDP growth numbers Annualized for Q4 will be released. The Core Personal Consumption Expenditures Price Index (Core PCE) will be published on Friday. These figures could give a clear direction to the USD/CAD pair.