USD/CAD confined in tight range above 1.25 ahead of FOMC
After losing 70 pips on Tuesday, the USD/CAD pair went into a consolidation phase on Wednesday and has been fluctuating in a 30-pip range as investors wait for the Fed to release the September meeting minutes. As of writing, the pair was trading at 1.2515, virtually unchanged on the day.
A broad-based selling pressure seen on the greenback accompanied by a robust rebound witnessed in crude oil prices, which helped the commodity-sensitive loonie gather strength against its peers, weighed on the pair on Tuesday. However, the pair failed to close the day below the critical 1.25 handle, suggesting that the sellers wanted to withdraw to sidelines in case a hawkish FOMC statement sparks another USD rally.
Although Chicago Fed President Evans argued that it would be premature to make a call on a December rate hike earlier in the session, the CME Group FedWatch Tool's rate hike probability remained unchanged above 90%. “Given the outcome of the September FOMC meeting, in which only four participants indicated no further rate hikes this year was appropriate, we expect the FOMC minutes to show that most participants see recent disinflation as largely driven by transitory factors," Barclays’ Research Team noted in a report on Wednesday.
- Fed minutes to show disinflation to be largely driven by transitory factors – Barclays
- Fed’s Evans: Premature to make call on December hike - BBG TV
On the other hand, after rising to its highest level in more than a week at $51.40, the barrel of West Texas Intermediate lost its bullish momentum and turned negative on the day, not allowing the pair to come under pressure. At the moment, the barrel of WTI was trading at $50.70, losing 0.4%. The next catalysts for crude oil prices could be the API's weekly crude oil stock report, which will be released at 20:30 GMT.
Technical outlook
The initial support for the pair is located at 1.2500 (psychological level) ahead of 1.2415 (50-DMA) and 1.2335 (Sep. 27 low). On the upside, resistances could be encountered at 1.2555 (Oct. 10 high), 1.2635 (Aug. 30 high) and 1.2665 (Aug. 31 high).