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The U.S. dollar weakens against the Canadian dollar during the course of Monday’s session, as the sentiment of the greenback remained wobbly ahead of the Federal Reserve’s policy meeting later this week, citing oil price rally has sent higher demand for the commodity-related loonie currency.

The pair hit a session low of 1.3136 during the U.S. trade, and later consolidated at 1.3161, recovering 0.41%.

Ahead of Friday’s U.S. consumer price data turned into positive, with a 0.2% gain in August compared to analysts’ forecast of a 0.1% gain, the dollar remained stronger. Meanwhile, consumer prices gained about 1.1% in a year-over-year basis, topping the expected 1.0% gain.   

The strong data added optimism on a potential increase interest rates in this month.

Further, the loonie strengthened as oil prices recoiled on Monday, after Venezuela announced OPEC and non-OPEC producers would likely hit an output stabilizing deal.   

Thus, the Canadian dollar remained soaring against the euro, with EUR/CAD dropping by about 0.16% to 1.4708 at the close of trade.

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Currency Pair: Bearish Hammer Formation

The pair’s movement appeared to follow the movement in the oil prices as Canada’s data calendar is empty. However, it also suggests that the pair could give further signals as the release of US housing data is scheduled today, though the main focus event is the Fed and BOJ rate decisions.  

In essence, many said that the main focus is likely on the interest rate dot chart and forecasts on the economy. Thus, the Bank of Japan is expected to initiate operation reverse twist, which cuts down long duration bond purchases and raises short duration bond purchases.    

Markets remained cautious over BOJ’s operation reverse twist, which could send the bond yield curve to steep globally, suggesting an equity market a sell-off.

The chart below illustrates the USD/CAD pair’s movement before the Fed and Bank of Japan’s decision on interest rates. An indicator was used to identify a trend marking the first three points as those numbered candlesticks.

Meanwhile, the third candle opened lower at 1.31927 on September 15, in which the stock’s price was seen breaking out at support level on the green, suggesting to wait for a supporting candle in the next sessions.    

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Conclusion

As the Federal Reserve’s policy meeting and the Bank of Japan’s interest rate decisions are closely watched in this week, we concluded that stock prices will remain bullish.

In addition, the struggling Canadian dollar would only create minimal effect and even though oil prices are weighed, it is still expected that the Fed could still increase interest rates in December, which is anticipated to be a rough week for the loonie.   

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