USD/CAD retreated to 1.2600 area as markets prepare for the Bank of Canada's rate decision. Economists at ING expect the BoC to hike rates by 25 bps, allowing the USD/CAD pair to challenge the 1.2500 support.

Bank of Canada set to hike today

“We expect the Bank of Canada to hike the policy rate by 25 bps today. A hike is around 70% priced in by the futures market, which implies some upside potential for the loonie if our call proves correct.”

“The combination of a CAD-positive BoC meeting and a USD-negative Fed meeting could send USD/CAD to re-test the 1.2500 support as early as today.”

“Any further escalations of geopolitical tensions and/or weakness in equities will clearly work against any CAD appreciation, although geographical distance and supported oil prices are reducing the loonie’s vulnerability compared to its European peers.”

See – BoC Preview: Forecasts from 10 major banks, to hike or not to hike?