- A combination of factors prompted fresh selling around USD/CAD on Wednesday.
- Bullish oil prices underpinned the loonie and exerted pressure amid weaker USD.
- Hawkish Fed expectations acted as a tailwind for the USD and helped limit losses.
- The market focus remains glued to the outcome of a two-day FOMC policy meeting.
The USD/CAD pair maintained its offered tone through the first half of the European session, albeit has managed to rebound few pips from daily lows. The pair was last seen trading just below the 1.2800 mark, down over 0.15% for the day.
A combination of factors failed to assist the USD/CAD pair to capitalize on the previous day's rebound from the 1.2745-40 region, instead prompted fresh selling on Wednesday. The risk-on impulse in the markets weighed on the safe-haven US dollar. Apart from this, bullish oil prices underpinned the commodity-linked loonie and exerted some pressure on the major.
China's struggling property giant Evergrande Group said it would pay the bond interest due on Thursday and eased immediate fears about a messy corporate collapse. This, in turn, boosted the global risk sentiment, which was evident from a generally positive tone around the equity markets and dented demand for the perceived safe-haven greenback.
Meanwhile, crude oil prices built on the overnight modest gains and rallied around 1.5% on Wednesday amid signs of tight supply and improving demand. Tuesday's figures from the American Petroleum Institute (API) showed US crude stocks fell by 6.1 million barrels last week. Traders now look forward to the official data on Wednesday to confirm the drop.
Nevertheless, rising crude oil prices acted as a tailwind for the Canadian dollar and contributed to the USD/CAD pair's intraday decline. The downside, however, seems limited as investors might refrain from placing aggressive bets ahead of the crucial outcome of a two-day FOMC monetary policy meeting. The Fed is scheduled to announce its decision later during the US session.
Investors will look for clues about the likely timing of the Fed's tapering plan. Apart from this, the updated economic projections and the so-called dot plot will play a key role in influencing the greenback in the near term. This, along with oil price dynamics, should help determine the next leg of a directional move for the USD/CAD pair.
Technical levels to watch
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