USD/CAD holds steady above 1.3500 mark ahead of FOMC meeting minutes

The USD/CAD pair struggles to capitalize on its gains registered over the past three days and oscillates in a narrow trading band through the first half of the European session on Wednesday. Spot prices, however, manage to hold above the 1.3500 psychological mark as traders keenly await the release of the highly-anticipated FOMC meeting minutes before placing fresh directional bets.

The minutes will be scrutinized closely for cues about the Federal Reserve's (Fed) rate-cut path, which, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and provide a fresh directional impetus to the USD/CAD pair. In the meantime, the markets have fully priced out the possibility of early rate cuts by the Fed, which remains supportive of elevated US Treasury bond yields. This, along with a softer risk tone, lends some support to the safe-haven buck and limits the downside for the currency pair.

Meanwhile, expectations that the Fed will keep interest rates higher for longer have weighed on the outlook for fuel demand and drag Crude Oil prices lower for the second straight day. Apart from this, softer-than-expected Canadian consumer inflation data released on Tuesday is seen as another factor undermining the commodity-linked Loonie and offering support to the USD/CAD pair. In fact, Canadian CPI decelerated to the 2.9% YoY rate in January and core inflation measures dropped to the lowest levels in more than two years.

Meanwhile, fears of supply disruptions from the Middle East remain in the wake of a string of attacks in the Red Sea by Houthi rebels in Yemen. This could act as a tailwind for the Oil prices and hold back traders from placing aggressive bearish bets around the Canadian Dollar (CAD). Moreover, the recent range-bound price action witnessed over the past two weeks or so warrants some caution before confirming a firm near-term direction for the USD/CAD pair in the absence of any relevant economic data on Wednesday.

Technical levels to watch