- USD/CAD trades with a mild negative bias for the second successive day on Tuesday.
- Bullish Crude Oil prices underpin the Loonie and exert pressure amid a softer USD.
- The downside seems limited as traders await the key FOMC decision on Wednesday.
The USD/CAD pair remains on the defensive for the second successive day on Tuesday and hits a three-day low, around the 1.3150 region during the Asian session.
Crude Oil prices consolidate the recent strong gains to over a three-month high touched on Monday and remain well supported by hopes that more stimulus from China – the world’s largest oil importer – will boost fuel demand. Apart from this, expectations for tighter global supply act as a tailwind for the black liquid, which, in turn, is seen underpinning the commodity-linked Loonie and acting as a headwind for the USD/CAD pair.
The US Dollar (USD), on the other hand, pulls back from a two-week high and for now, seems to have stalled the recent recovery move from the lowest level since April 2022, witnessed over the past week or so. This is seen as another factor exerting some pressure on the USD/CAD pair, though the lack of strong follow-through selling warrants some cation before placing aggressive bearish bets and positioning for further losses.
Traders might prefer to move to the sidelines and wait for fresh cues about the Federal Reserve’s (Fed) future rate-hike path. It is worth recalling that the markets have been pricing out the possibility of any further interest rate hikes after the expected 25 bps lift-off at the end of a two-day FOMC meeting on Wednesday. Hence, the focus remains on the accompanying policy statement and Fed Chair Jerome Powell’s remarks at the post-meeting press conference.
The Fed’s policy outlook will play a key role in driving the USD demand in the near term and provide a fresh directional impetus to the USD/CAD pair. In the meantime, traders on Tuesday will take cues from the release of the Conference Board’s US Consumer Sentiment Index and Richmond Manufacturing Index. This week’s US economic docket also features the Advance Q2 GDP print and the Core PCE Price Index – the Fed’s preferred inflation gauge.
Apart from this, Oil price dynamics might further contribute to producing some meaningful trading opportunities around the USD/CAD pair. The aforementioned fundamental backdrop, meanwhile, makes it prudent to wait for strong follow-through selling and a sustained break/acceptance below the 1.3100 mark to support prospects for the resumption of the downward trajectory from the YTD peak touched in March.