USD/CAD starting to drift from the top, falling towards 1.26

• Lack of rate increase and an increasingly dovish tone from the BoCis leaving the Loonie to drift heading into the late week.
• Risk to the downside is sticking in the charts as the CAD heads into Retail  Sales and CPI data for Thursday.

The USD/CAD is beginning to soften following the Bank of Canada's (BoC) non-starter rate call on Wednesday, and the pair is sinking into 1.2625 after reaching a peak of 1.2660.

As FXStreet's Yohay Elam noted, "the USD/CAD jumped to a high of 1.2635 as the statement pledged caution regarding raising the interest rates. This was not new but perhaps some had expected a more hawkish tone. In addition, the Canadian Dollar advanced nicely in recent weeks thanks to NAFTA progress and 3-year highs for oil. Perhaps this was an opportunity to take profits." 

USD/CAD: rate differential to exert upward pressure, post BoC - Nomura

USD/CAD Forecast: The BOC-related jump may have been premature – a selling opportunity?

However, analysts at Nomura pointed out that, "we maintain that rate hikes will be gradual, which should see the USD/CAD rates differential continue to exert upward pressure on USD/CAD. However, Canada’s terms of trade have improved markedly. The terms of trade tend to be the dominant driver of CAD. We therefore wait for better levels to re-engage CAD shorts"

USD/CAD Levels to watch

The drive upwards yesterday in the USD/CAD hasn't altered much of the technical outlook, and the pair still rests deeply within bearish territory, and Yohay Elam posited that, "on the way up, the pair flirted with the 200-day Simple Moving Average, but backed down. 1.2550, 1.2450, and 1.2250 are support lines while resistance awaits at 1.2630, 1.2680, and 1.2760."