USD/CAD rebounds toward 1.23 as WTI drops below $50

Following a slide to a fresh session low at 1.2255 in the last hours, the USD/CAD pair reversed course and started to rise toward the 1.23 handle as the commodity-linked loonie weakened on a recent crude oil sell-off. As of writing, the pair was trading at 1.2287, still losing 0.1% on the day.

Crude oil prices came under pressure on Tuesday ahead of the API data on U.S. inventories, which is expected to show another build up, dragging the barrel of West Texas Intermediate below the $50 mark. At the moment, the barrel of WTI is trading at $49.85, losing 1% on the day. "It feels kind of like positioning ahead of tonight's report, but there's not a lot of action behind the move," Phil Flynn, an analyst at Price Futures Group in Chicago, told Reuters.

On the other hand, the greenback is trying to erase its daily losses ahead of the FOMC meeting on Wednesday with the US Dollar Index turning flat at 91.80 in the session, providing an additional boost to the pair. Although today's mixed macro data from the U.S. pushed the DXY down to the mid-91 area, the 10-year US T-bond yield rose to a fresh monthly high at 2.245%, allowing the buck to gather strength against its peers.

"The Fed has already outlined how it intends to start trimming its balance sheet, but it is yet to announce when that will commence. Given that Yellen’s current term is due to end in February next year, the market is expecting that balance sheet reduction will start soon, even if the Fed (as we expect) decides that conditions cannot tolerate a third interest rate hike this year," Rabobank analysts wrote in a recent report.

Geopolitics and central banks to take centre stage this week – Rabobank

Technical outlook

The pair still needs to make a decisive break above 1.2300 (psychological level/20-DMA) to extend its gains to 1.2410 (Sep. 6 high) and 1.2470 (50-DMA). On the flip side, supports could be seen at 1.2255 (daily low), 1.2185 (10-DMA) and 1.2080 (Apr. 27, 2015, low).

BoC is eyeing CAD strength - Rabobank

Today's data from the U.S.:

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