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USD / CAD - Canadian dollar drifting ahead of BoC decision

• Most analysts expect BoC to leave rates unchanged at 5.0%
• Oil rally continues on production cut extensions.
• USD consolidates recent gains.

USDCAD: open: 1.3653-56, range since Friday: 1.3626-1.3672, close 1.3641, WTI $86.24, Gold $1925.54

he Canadian dollar consolidated recent losses overnight, with today's Bank of Canada monetary policy decision in focus. The prevailing wisdom is that the BoC will leave rates unchanged at 5.0%, but the statement will have a hawkish bias. This meeting is not followed by a press conference, so markets will have to wait until tomorrow to get clarity on the decision when Governor Tiff Macklem speaks in Calgary at 2:00 pm.

Recent data, including slightly hotter than expected inflation in July, suggests that the BoC would be justified in hiking rates again. However, one of the reasons for remaining on the sidelines is that three provincial premiers have written letters to Governor Tiff Macklem. They are urging him to stop raising interest rates as his moves are creating undue hardship on Canadians and exacerbating the housing affordability crisis.

Oil prices are giving the Canadian dollar some support. Yesterday, Saudi Arabia announced it would extend its 1.3 million barrel-per-day production cut until the end of December, while Russia said it would follow suit with its 300,000 b/d cut. WTI traded in a $85.94-$87.00/b range overnight.

EURUSD traded in a 1.0713-1.0747 range. Prices are trading defensively due to fears of another energy crisis after Saudi Arabia extended its voluntary production cuts and downgraded risks for another ECB rate hike.

GBPUSD drifted in a 1.2544-1.2588 range, weakened by the lower than expected August Construction PMI (actual 50.8 vs 51.7 in July), limiting gains.

USDJPY rose from 147.03 to 147.72 due to rising Treasury yields. The 10-year yield is steady after closing at 4.272% yesterday. The higher USDJPY is catching the attention of policymakers. Vice-Minister of Finance Masato Kanda said, "Looking at underlying moves, speculative action, or activity that cannot be explained by fundamentals can be observed."

AUDUSD firmed in a 0.6357-0.6404 range overnight, underpinned by better-than-expected GDP data (actual 0.4% q/q vs. forecast 0.3% and 2.1% y/y forecast 1.7%).

US ISM Service PMI is expected at 52.5 compared to 52.7 in July