USD/CAD rebounds after a weekly lows test at around 1.2830, Fed policy in focus

• USD/CAD is minutely higher than weekly lows at around 1.2830, downside looks likely ahead.
• The Fed is expected to announce a consecutive rate hike by 75 bps.
• Oil prices have rebounded firmly as the DXY has extended losses.

The USD/CAD pair has displayed a less-confident rebound after testing its weekly lows at 1.2835 in early Tokyo. The asset displayed a steep fall on Monday after sensing tough hurdles at around 1.2940. On a broader note, the asset has turned into a balancing mode, which covers a wide range of 1.2835-1.2940 and is likely to display a downside break as the overall has remained bearish.

The responsiveness of weakness in the USD/CAD pair seems higher than the US dollar index (DXY), which indicates that the Canadian dollar is also extremely strong and is dragging the asset swiftly. A rebound move has been witnessed in the DXY, however, the asset will remain on the back foot as pre-anxiety of investors ahead of the Federal Reserve (Fed) monetary policy has cooled off.

Odds of a rate hike by 100 basis points (bps) are not in sight as the long-run inflation expectations have trimmed and the US economic data is displaying a bumpy ride ahead. This will compel Fed chair Jerome Powell, not to get too much ambitious and follow a status-quo structure rather than going all in.

On the loonie front, higher-than-expected Retail Sales have failed to support the loonie bulls. It is worth noting that the economic data was highly contaminated by a whopping 8.1% inflation rate. Higher Consumer Price Index (CPI) has driven the economic data vigorously. Apart from that, the rate hike of 1% by the Bank of Canada (BOC) indicates that the inflation situation is beyond the control of the administration for now.

Meanwhile, the oil prices have rebounded firmly on a weaker DXY. The black gold has picked bids around $92.60, however, the overall structure is still bearish as the US economy may report an increment in employment generation at a minimal rate. Google has halted its recruitment process for the past two weeks and Ford is planning for retrenchment of 8k jobs ahead.