USD/CAD flat-lines above 1.3700 mark, focus remains glued to FOMC policy decision

The USD/CAD pair struggles to capitalize on the previous day's goodish rebound from a two-week low and edges lower on Tuesday amid the prevalent US Dollar (USD) selling bias. The pair remains depressed around the 1.3700 mark through the mid-European session, though the downside seems cushioned as traders keenly await the highly-anticipated FOMC monetary policy decision.

The US central bank is scheduled to announce the outcome of a two-day meeting later during the US session and is expected to deliver a smaller 25 bps rate hike. Moreover, the collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - has been fueling speculations that the US central bank might even cut rates during the second half of the year. Hence, investors will closely scrutinize the accompanying policy statement, the updated economic projections and Fed Chair Jerome Powell's comments at the post-meeting press conference for clues about the future rate-hike path. This will play a key role in influencing the near-term US Dollar price dynamics and determine the next leg of a directional move for the USD/CAD pair.

Heading into the key central bank event risks, expectations that the Fed will adopt a less hawkish stance, along with easing fears of a full-blown banking crisis, drags the safe-haven USD to a fresh multi-week low. This, along with this week's solid recovery in Crude Oil prices from a 15-month low, underpins the commodity-linked Loonie and acts as a headwind for the USD/CAD pair. That said, the softer-than-expected Canadian consumer inflation released on Tuesday backed the case for the Bank of Canada (BoC) to refrain from raising interest rates any further. This, in turn, caps the upside for the Canadian Dollar and is seen lending some support to the pair, warranting some caution before positioning for a meaningful slide.

Technical levels to watch