The loonie pair declines for the first time in the week even as risk catalysts stay upbeat. The reason could be traced from the pair’s traders cautious sentiment ahead of the Bank of Canada (BOC) monetary policy meeting.

Global market sentiment remains cautiously optimistic as the US policymakers are finally inching closer to the much-awaited coronavirus (COVID-19) stimulus. While House Speaker Nancy Pelosi recently conveyed optimism relating to the talks, US Treasury Secretary Steve Mnuchin put forward a higher than the earlier proposal of $908 billion to $916 billion figure for the aid package.

The COVID-19 vaccine distribution in the UK and likely approval of Pfizer’s vaccine by the Canadian authorities this week also add to the risk-on mood. However, fears of a no-deal Brexit and the surge in the US virus infections and death toll to the record high probe the bulls.

The central bank of canada is expected to keep its benchmark interest rate on hold at a record low of 0.25% but could comment on the recent strength of the loonie. “They might talk it down a little bit, most likely through saying something that they will remain dovish for some time,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

“Now that we have got new lockdowns coming in some provinces … they might say we’re not going to cut any more of our asset purchases in the near term.” In October, the central bank reduced its bond-buying program to C$4 billion per week from C$5 billion.

On the other hand, oil prices remain downbeat for the third consecutive day even as the industry inventory data from the American Petroleum Institute (API) eased below 4.146M prior to 1.141M during the week ended on December 04. Oil is Canada’s key export and hence has a notable impact on the USD/CAD prices.

USD/CAD 4 Hour Chart:

Support: 1.2782 (S1), 1.2746 (S2), 1.2724 (S3).

Resistance: 1.2840 (R1), 1.2862 (R2), 1.2898 (R3).

Even though there are some favorable catalysts supporting greenback, Canadian dollar seems to be stronger ahead of the BOC monetary policy and we expect a bearish trend for USD/CAD.