USD/CAD consolidates in a range near multi-week high, just below mid-1.3700s ahead of BoC

• USD/CAD struggles to attract follow-through buying amid subdued USD price action.
• A positive risk tone and retreating US bond yields keep the USD bulls on the defensive.
• Bearish Crude Oil prices undermine the Loonie and act as a tailwind ahead of the BoC.

The USD/CAD pair struggles to capitalize on the overnight goodish intraday rally of around 90 pips from a multi-day low and oscillates in a narrow band during the Asian session on Wednesday. Spot prices currently trade just below mid-1.3700s, or a near three-week high touched on Tuesday as traders keenly await the Bank of Canada (BoC) policy decision before positioning for the next leg of a directional move.

The Canadian central bank is expected to keep its benchmark interest rates unchanged at a 22-year high of 5.0% for the second consecutive month in October on the back of eroding consumer and business confidence. The BoC may also show less conviction in the need for a more aggressive policy tightening in the wake of signs of easing inflationary pressures. This, along with the recent decline in Crude Oil prices, is seen undermining the commodity-linked Loonie and acts as a tailwind for the USD/CAD pair.

Heading into the key central bank event risk, bullish traders seem reluctant to place fresh bets in the wake of subdued US Dollar (USD) price action. Retreating US Treasury bond yields, along with a generally positive risk tone, fail to assist the safe-haven Greenback to build on the previous day's solid rebound from over a one-month low. This, in turn, is seen as a key factor acting as a headwind for the USD/CAD pair. The downside for the USD, however, remains limited amid hawkish Federal Reserve (Fed) expectations.

The flash version of the US PMIs released on Tuesday showed that business activity in the manufacturing sector moved out of contraction territory for the first time in six months, and services activity accelerated modestly in October. This was seen as a sign that the US economy remains resilient despite a surge in interest rates, which should allow the Fed to stick to its rate-hiking cycle to tame inflation. The outlook, meanwhile, should limit any meaningful downfall for the US bond yields and favour the USD bulls.

The aforementioned fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside and corrective declines might still be seen as a buying opportunity. Spot prices seem poised to climb further towards challenging a multi-month peak, around the 1.3785 region touched on October 6. Some follow-through buying, leading to a subsequent strength beyond the 1.3800 mark, will confirm a fresh breakout and pave the way for a further near-term appreciating move.

Technical levels to watch