USD/CAD eases from multi-day peak, still well bid above mid-1.2800s ahead of FOMC minutes

• USD/CAD gained positive traction for the second straight day amid resurgent USD demand.
• The worsening global economic outlook drove some heaven flows towards the greenback.
• Bulls seemed unaffected by softer US data; the focus remains on the FOMC meeting minutes.

The USD/CAD pair built on the previous day's modest bounce from over a two-week low, around the 1.2760 area and gained traction for the second successive day on Wednesday. The momentum pushed spot prices to a fresh weekly high, around the 1.2885 region during the early North American session and was sponsored by broad-based US dollar strength.

The worsening outlook for the global economy continued weighing on investors' sentiment, which was evident from a generally weaker tone around the equity markets. This allowed the safe-haven USD to stage a solid recovery from the monthly low touched on Tuesday. Apart from this, some repositioning trade ahead of the key event risk on Wednesday prompted some USD short-covering and turned out to be a key factor that extended support to the USD/CAD pair.

The anti-risk flow, along with the idea that the Fed could pause the rate hike cycle later this year, dragged the US Treasury bond yields to the lowest level in over a month. This, however, did little to dent the strong intraday bullish sentiment surrounding the USD, which also seemed rather unaffected by weaker US Durable Goods Orders data. That said, an uptick in crude oil prices could underpin the commodity-linked loonie and cap the USD/CAD pair.

Investors might also be reluctant to place aggressive bets and prefer to wait for a fresh catalyst from the FOMC meeting minutes, due for release later during the US session. Market participants will look for clues about the possibility of a jumbo 75 bps Fed rate hike in June. This, in turn, will play a key role in driving the USD demand. Apart from this, crude oil price dynamics should produce short-term trading opportunities around the USD/CAD pair.

Technical levels to watch