USD/CAD slides back closer to mid-1.3100s ahead of US/Canadian macro data, FOMC

• A combination of factors prompted some fresh selling around USD/CAD on Wednesday.
• The risk-on mood dented the greenback’s relative safe-haven demand ahead of FOMC.
• A strong rally in oil prices underpinned the loonie and contributed to the intraday slide.

The USD/CAD pair remained depressed through the early European session and was last seen hovering near daily lows, around the 1.3165-60 region.

The pair continued with its struggle to find acceptance/build on the momentum beyond the 1.3200 mark and witnessed a modest intraday pullback from the top end of a one-week-old trading range. The downtick was sponsored by a combination of factors – the prevalent selling bias around the US dollar and a strong pickup in crude oil prices.

The global risk sentiment remained well supported by the latest optimism over a potential vaccine for the highly contagious coronavirus disease. This coupled with expectations of a dovish Fed further weighed on the greenback and contributed towards capping gains for the USD/CAD pair, instead prompted some selling at higher levels.

Apart from the USD weakness, a strong intraday rally in crude oil prices underpinned the commodity-linked currency – the loonie – and contributed to the intraday slide. The downside, however, is likely to remain limited as investors might refrain from placing aggressive bets ahead of the highly anticipated FOMC monetary policy decision.

Even from a technical perspective, the USD/CAD pair has been oscillating in a range over the past one week or so. This further warrants some caution for aggressive traders and positioning for a firm near-term direction.

Heading into the key central bank event, the release of the US Monthly Retail Sales and Canadian consumer inflation figures will be looked upon for some short-term trading opportunities during the early North American session.

Technical levels to watch