Canada's second-quarter GDP grew by +3.3% year-on-year, data released earlier this month by Statistics Canada showed. This indicator followed the growth of 3.1% in the first quarter but also fell short of the market's growth expectations of 4.5%. On a quarterly basis, real GDP grew by 0.8%.

"Growth in the 2nd quarter was contained by a decline in investment in housing construction and household spending on durable goods, as well as growth in imports, which exceeded exports. Final domestic demand rose by 0.7% after a 0.9% increase in the first quarter," Statistics Canada said.

At the same time, business activity in the manufacturing sector of Canada declined in August, and the S&P Global PMI fell to 48.7 from 52.5 in July. The reading was well below market expectations of 53.6 and fell below 50, which separates growth from slowdown in business activity. At the same time, "output and new orders fell at a faster pace, and employment fell for the first time since the start of the pandemic in two years," S&P Global Market Intelligence noted.

Nevertheless, at a meeting on September 7, the Bank of Canada decided to tighten financial conditions for the country's business by raising the interest rate once again and immediately by 0.75%.

In an accompanying statement, the BOC said that rates would need to be raised further given the outlook for inflation. "The data point to a further increase in price pressures, especially in services. Short-term inflation expectations remain high and the Bank of Canada remains strongly committed to price stability and will take the necessary steps to reach its 2% inflation target."

Data released two days later showed that the Canadian unemployment rate rose to 5.4% in August from 4.9% in July, which was worse than market expectations of 5%. The net change in employment was -39.7k versus the market's expectation of +15k. Full-time employment decreased by 77.2k and part-time employment increased by 37.5k over the same period.

Thus, the BOC found itself in a difficult situation. On the one hand, it needs to control the level of inflation, which continues to rise. On the other hand, it also needs to take into account the deteriorating macroeconomic data coming from Canada.

The next meeting of the regulator is on October 26. Assessing the reaction of the Canadian dollar to the results of the September meeting of the BOC (it first strengthened and then continued to sharply weaken against the US dollar), it would probably be logical to assume further growth in the USD/CAD pair, also taking into account the fall in oil prices, stock indices and expectations of the development of a super tight monetary policy cycle of the Fed.

Today, the Fed meeting begins, which will end on Wednesday with the publication of the decision on the interest rate. Another increase of 0.75% is widely expected. However, a significant number of economists and market participants are betting on a more decisive tightening of the Fed's monetary policy (an increase in the interest rate by 1.0% at once) and on harsh comments from the Fed's leaders regarding the further prospects for the central bank's policy.

As for today's news concerning the dynamics of the CAD and the USD/CAD pair, it is worth paying attention to the publication at (12:30 GMT) of consumer price indices in Canada. They are a key indicator of inflation, and consumer prices account for the majority of overall inflation. Estimating the level of inflation is important for the management of the central bank in determining the parameters of the current monetary policy. If the expected data turns out to be weaker than the previous values, as expected, this will negatively affect the CAD and positively affect the USD/CAD pair.

As of writing, it is trading near 1.3285, in a sustained bull market. On the daily chart of the pair, there is a recently formed range between the local high at 1.3343 and the low at 1.3227.

Given the strong upward momentum, it is logical to assume further growth, and a breakdown of the local resistance level 1.3343 will be a confirming signal for our assumption.