USD/CAD remains stuck in tight range below 1.3200 ahead of US inflation data

• US Dollar Index moves sideways above 98 on Tuesday.
• Annual core PCE Price Index in US is expected to tick up to 1.7%.
• FOMC is expected to announce 25 bps rate cut tomorrow.

For the third straight trading day, the USD/CAD pair is having a difficult time finding direction and is fluctuating in a tight range below the 1.32 mark. Rising crude oil prices today help  the commodity-related Loonie find demand and offset the potential positive impact of the broad USD strength on the pair. As of writing, the pair was posting modest daily gains at 1.3170.

Fed’s favourite inflation data coming up next

Later in the session, the US Bureau of Economic Analysis (BEA) will release the Personal Consumption Expenditure (PCE) Price Index, the Federal Reserve’s preferred gauge of inflation. The core PCE Price Index, which excludes volatile food and energy prices, is expected to tink up to 1.7% in June from 1.6% in May. A higher-than-expected reading could provide a boost to the Greenback as it could be seen as a factor that would cause the Fed to refrain from committing to a dovish outlook for the remainder of the year.

Previewing this week’s FOMC meeting,  “We expect the FOMC to make an insurance cut of 25 bps to the target range for the federal funds rate at the July Meeting,” Rabobank analysts said.  

“However, we think that a larger cut, more specifically 50 bps, is unlikely. After all, the Fed sees a cut to the target range at this point as an insurance cut, instead of part of a full-blown cutting cycle. This means that they do not think that the economy is falling off a cliff in the near-term.”

Meanwhile, investors will be paying close attention to headlines coming out of the high-level US-China trade talks that are set to start today and last for two days. Any reaction in crude oil to trade-related developments could impact the Loonie’s market valuation.  

Technical levels to watch for