What a difference two weeks can make. If we look back to late August, Canadian activity data was beginning to show a slightly more positive turn, but oil prices were pressing to new lows and with that the market was nearly 100% priced for another BoC cut by the end of the year.Since then we have seen a sharp bounce in oil prices, the better data trend continue (esp. trade), and a BoC sounding closer to neutral than dovish. All of that has considerably reduced expectations for another cut from the BoC to around 25-35% for the rest of the year (as per OIS and BAX)

For the week ahead, the highly anticipated FOMC meeting should dominate direction for USD/CAD, and US team is still officially calling for a hike that should be supportive for the pair. For CAD independently though, this week's Canadian data could extend the improving trend of the past couple weeks and offer the potential for some outperformance on certain crosses. Economists are looking for a solid manufacturing sales release-the likely highlight given the BoC's focus on activity data this year-and for CPI to remain stable close to target. There is a speech from BoC Dep. Gov. Agathe Côté on Wednesday entitled "Promoting Canada's Economic and Financial Well-Being", though without a press conference we don't expect much new from that.

Oil prices remain a major wildcard, and since they contain more forward looking information about activity trends in the coming months, they could easily outdo data prints this week. However, drastic moves are not expected to be seen, it will be harder for the market to ignore the improving data trend that now points to some upside risk to the BoC's Q3 projection (of 1.5%q/q ann.).

"Trading-wise, avoiding binary FOMC risks and focusing on potential support for CAD elsewhere suggests the best opportunities may be in pairs where we like being long CAD. As we have pointed out for most of 2015, those include long CAD vs. AUD and NZD in particular. In AUD/CAD, we like selling current spot levels, with a stop above 0.9600. We look for an initial target of the recent lows, and even lower levels in the months ahead. In NZD/CAD, we like selling any small rally with a stop above 0.8560 to take advantage of a long term trend lower", says RBC Capital.