USD/CAD upside capped near 1.2670

• Spot is trading in fresh 2-month tops
• Attention remains on BoC meeting (Wednesday)
• CAD weaker on easing expectations of further tightening by BoC

The greenback has surrendered some gains after hitting fresh 2-month tops vs. its Canadian neighbor, with USD/CAD now returning to the mid-1.2600s.

USD/CAD focused on the BoC

After climbing to fresh peaks around 1.2670 during early trade, spot lost some upside momentum and is currently struggling to keep the trade in the positive territory.

CAD remains weak as market participants expect the Bank of Canada to deliver a dovish message at its meeting on Wednesday.  At the same time, speculations on further rate hikes in the next months seem to have run out of traction in recent weeks despite domestic fundamentals remain solid.

In the meantime, yield spread differentials - particularly in the shorter end of the curve - continue to drive the sentiment around spot, relegating crude oil dynamics as a secondary role.

Regarding the NAFTA controversy, a recent survey by Bloomberg saw Canadian companies with high exposure to US markets keeping the positive performance, while investors are seeing ‘business as usual’ in Canada despite some concerns over the agreement.

Ahead in the day, there are no scheduled releases in Canada, whereas Markit will publish its advanced manufacturing/services PMI for the current month.

USD/CAD significant levels

As of writing the pair is down 0.02% at 1.2645 and a breach of 1.2611 (low Oct.23) would aim for 1.2531 (10-day sma) and then 1.2448 (low Oct.19). On the upside, the initial hurdle aligns at 1.2669 (high Oct.24) followed by 1.2722 (38.2% Fibo of the 2017 drop) and finally 1.2781 (high Aug.15).