- USD/CAD enters a bearish consolidation phase near a one-and-half-week low set on Tuesday.
- Bullish Crude Oil prices continue to underpin the Loonie and act as a headwind for the major.
- Subdued USD price action also does little to impress bulls ahead of the crucial US CPI report.
The USD/CAD pair is seen oscillating in a range just above mid-1.3500s during the Asian session on Wednesday and consolidating its losses registered over the past three days, to a a one-and-half-week low touched the previous day.
Crude Oil prices stand tall near a 10-month high and remain well supported by concerns about tighter global supplies. The Organization of Petroleum Exporting Countries (OPEC) said in its monthly report on Tuesday that oil markets will tighten further this year amid robust demand and lower production. This comes on top of deeper supply cuts announced by Saudi Arabia and Russia – the world's two biggest Oil producers – for the remainder of 2023 and continues to benefit the black liquid. Bullish Oil prices underpin the commodity-linked Loonie, which, along with subdued US Dollar (USD) price action, acts as a headwind for the USD/CAD pair.
The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near the weekly low as traders seem reluctant to place aggressive bets ahead of the US consumer inflation figures, due later during the North American session. The crucial US CPI report might provide fresh cues about the Federal Reserve's (Fed) future rate-hike path. This, in turn, will play a key role in influencing the USD and help determine the next leg of a directional move for the USD/CAD pair. In the meantime, bets for one more 25 bps Fed rate hike move by the end of this year remain supportive of elevated US Treasury bond yields and limit the USD downside.
Investors seem convinced that the US central bank will stick to its hawkish stance and keep interest rates higher for longer. The expectations were reaffirmed by the upbeat US macro data released last week, which pointed to a still resilient economy. Adding to this, the fact that inflation is not cooling fast enough supports prospects for further policy tightening by the Fed. This, in turn, warrants some caution before positioning for an extension of the USD/CAD pair's recent retracement slide from the vicinity of the 1.3700 mark, or its highest level since March touched last week.
Technical levels to watch
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