USD/CAD consolidates below 1.2200 mark, awaits Canadian CPI/FOMC

The USD/CAD pair bounced around 15-20 pips from the early European session lows and was last seen hovering near the top end of its daily trading range, just below the 1.2200 mark.

A modest downtick in the US Treasury bond yields kept the US dollar bulls on the defensive through the first half of the trading action on Wednesday. However, expectations for a less dovish Fed helped put a tentative floor under the greenback and extended some support to the USD/CAD pair.

Investors now seem to have started pricing in the prospects for an earlier stimulus withdrawal amid worries about rising inflationary pressure. The concerns were further fueled by Tuesday's US Producer Price Index, which rose 0.8% MoM in May and accelerated 6.6% on a yearly basis.

Meanwhile, the supporting factor, to some extent, was offset by the prevalent strong bullish sentiment surrounding crude oil prices, which tend to underpin the commodity-linked loonie. This, in turn, seemed to be the only factor that might cap any meaningful upside for the USD/CAD pair.

Investors might also prefer to wait on the sidelines ahead of the highly-anticipated FOMC policy decision, due later during the US session. This will play a key role in influencing the USD price dynamics in the near-term and provide a fresh directional impetus to the USD/CAD pair.

Heading into the key event risk, traders will confront the release of the latest Canadian consumer inflation figures. This, along with crude oil prices, will be looked upon for some meaningful trading opportunities during the early North American session.

Technical levels to watch