USD/CAD holds above 1.4150 ahead of BoC rate decision

• USD/CAD trades in positive territory for the third consecutive day around 1.4170 in Tuesday’s early Asian session. 
• The Fed is likely to cut rates next week, but the outlook is to tilt hawkish, supporting the USD. 
• The BoC is expected to cut its overnight rate by 50 bps on Wednesday.

The USD/CAD pair extends its upside to near 1.4170 on the firmer US Dollar (USD) and higher US yields during the early Asian session on Tuesday. The US NFIB Business Optimism Index and Unit Labor Costs are due later on Tuesday. 

Friday's US November employment data showed the labor market is cooling but not so robust as to rule out a rate cut from the Federal Reserve (Fed) next week. The US central bank started its interest rate easing cycle with a jumbo 50 basis points (bps) cut in September, followed by a 25 bps cut in November. Traders are now pricing in nearly an 88% chance of Fed rate reductions by a quarter of a percentage point on December 18, according to the CME FedWatch Tool.

"The Fed should be in a position to move forward on the December rate cut, but CPI report now becomes another significant milestone in the policy-adjustment calculus," noted Rick Rieder, BlackRock chief investment officer of global fixed income.

Despite the rising bets for a Fed rate cut in December, market players remain focused on the cautious stance of the Fed officials, which might lift the Greenback against the Canadian Dollar (CAD). San Francisco Fed President Mary Daly noted on Friday that the US central bank will still step in with additional rate hikes if price growth begins to spiral once again.

On the Loonie front, the Bank of Canada (BoC) interest rate will be closely watched. The BoC is anticipated to deliver a 50 bps reduction on Wednesday after the same move in October, bringing the benchmark rate to 3.25%. Nonetheless, the recovery in crude oil prices might help limit the CAD’s losses, as Canada is the largest oil exporter to the United States (US), and higher crude oil prices tend to have a positive impact on the CAD value.