The pair has been on a steady grind higher since mid-February and yesterday's break above 1.3700 is very much helping with the technical case for a stronger relief rally. That said, the September to October highs between 1.3800 to 1.3900 means that buyers will quickly run into key technical resistance despite the more optimistic development yesterday.
But there is an argument to be made that the pair has the potential to push back towards 1.4000 next.
The BOC is in focus today but they are very much expected to leave interest rates unchanged at 4.50%, after already cautioning markets on that in January. In terms of policy guidance, I wouldn't expect much change and for the statement to reaffirm a more wait-and-see approach by the central bank in the battle against inflation.
And after Fed chair Powell's hawkish remarks yesterday, it puts the BOC and Fed in total opposite corners. The policy divergence, should it hold true for a 50 bps rate hike by the Fed this month, could be a key trigger for USD/CAD to scale to fresh highs above what we saw last year.
That will be some food for thought in the week(s) ahead as the pair keeps above the 1.3700 mark.
