As oil prices fall and investors become risk-averse before the BOC meeting, USD/CAD rises to 1.3200

The USD/CAD has risen for three consecutive trading days, and it is currently trading near 1.3190, which is the weekly high. To appease buyers near the highest levels in two months prior to the Bank of Canada (BOC) Monetary Policy Meeting, the Loonie pair has recently been applauding rising rates and a risk-aversion wave.

Declining prices of WTI crude oil, Canada's principal export, further strengthen the USD/CAD exchange rate as speculators anticipate the fifth BOC rate hike in 2022.

WTI crude oil prices have dropped to their lowest level since late January, down 1.70 percent to $85.40 as of press time on the back of recession worries and a stronger US dollar. Market perceptions of the latest production cut by OPEC and its partners, including Russia, known collectively as OPEC+, could add to the downward pressure on commodity prices.

In addition to the covid-related pessimism in China and the European energy crisis, improved US data strengthened the hawkish Fedbets and boosted the US dollar.

In the United States, the ISM Services PMI rose to 56.7 from 55.1 and above market expectations. In contrast to initial expectations of 45.0 and 44.1, the S&P Global Composite PMI and Services PMI both fell to 44.6 and 43.7, respectively. Still, following the news, the US Dollar Index (DXY) rose to a new 20-year high. There is now a 72.0% possibility of a 50 bps rate hike by the Fed in September, according to the CME's FedWatch Tool, up from 57.0% the day before.

The three-day surge in rates for 10-year US Treasuries to 3.25 percent is the highest it has been since June 15. The S&P 500 futures have also dropped to a new seven-week low, falling 0.55 percent intraday to 3,890.

The stronger U.S. dollar, declining oil prices, and reduced risk appetite should keep USD/CAD bulls optimistic despite the BOC's expected base rate increase of 75 basis points to 3.25 percent. Consolidating recent gains may be possible for the Canadian currency, however, thanks to hawkish comments from the BOC Rate Statement and softer Fedspeak.