- USD/CAD struggled to capitalize on the overnight move up and remained below the 1.2200 mark.
- Bullish crude oil prices, stronger Canadian CPI figures underpinned the loonie and capped gains.
- The downside remains cushioned as investors seemed reluctant ahead of the key FOMC decision.
The USD/CAD pair remained on the defensive, around the 1.2175-80 region and had a rather muted reaction to the Canadian CPI report.
Having struggled to find acceptance/build on the momentum beyond the 1.2200 mark, the USD/CAD pair edged lower on Wednesday and was pressured by a combination of factors. Crude oil prices prolonged the recent strong bullish run and climbed to fresh multi-year tops. This, along with mostly upbeat Canadian inflation figures, underpinned the commodity-linked loonie.
Data published by Statistics Canada revealed that the headline Canadian CPI held steady at 0.5% in May and rose to 3.6% on a yearly basis from 3.4% previous. This was slightly better than the 3.5% expected. Adding to this, the Bank of Canada’s (BoC) Core CPI (excluding volatile food and energy prices) also surpassed consensus estimates and climbed to 2.8% from 2.3% in April.
On the other hand, the US dollar witnessed a subdued/range-bound price action as investors seemed reluctant to place any aggressive bets ahead of the highly-anticipated FOMC policy decision. That said, expectations for a less dovish Fed helped put a tentative floor under the greenback. This, in turn, extended some support to the USD/CAD pair and helped limit any meaningful slide.
The market might have already started pricing in the prospects for an earlier stimulus withdrawal amid worries about rising inflationary pressure. Hence, investors will be closely watching for clues if members have already started the discussion to reduce the pace of the current $120 billion in monthly bond purchases. Apart from this, updated economic projections and Fed Chair Jerome Powell’s tone at the post-meeting press conference will influence the near-term USD price dynamics.
Technical levels to watch