USD/CAD bulls retain control near two-year peak, Fed decision eyed for fresh impetus

• USD/CAD hits a two-year high and now seems to have entered a bullish consolidation phase.
• An intraday move up in oil prices underpins the loonie and acts as a headwind for the major.
• Sustained USD buying continues to lend support as traders keenly await the FOMC decision.

The USD/CAD pair now seems to have entered a bullish consolidation phase and is seen oscillating in a range just below a two-year high touched earlier this Wednesday. The 1.3400 mark remains a key hurdle for spot prices as the focus remains glued to the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session.

The US central bank is expected to stick to its aggressive policy tightening path to tame inflation and deliver another supersized 75 bps rate hike at the end of a two-day policy meeting on Wednesday. This, in turn, pushes the US dollar to a fresh 20-year peak and turns out to be a key factor that continues to act as a tailwind for the USD/CAD pair.

That said, the risk-on impulse - as depicted by a generally positive tone around the equity markets - acts as a headwind for the safe-haven greenback ahead of the key central bank event risk. Apart from this, a goodish pickup in crude oil prices underpins the commodity-linked loonie and contributes to capping gains for the USD/CAD pair, at least for now.

Russian President Vladimir Putin announces a partial military mobilisation, raising geopolitical risks and worries about a tighter global oil supply. This, in turn, assists oil prices to gain some intraday positive traction. That said, concerns that a deeper global economic downturn will dent fuel demand keep a lid on any meaningful upside for the black liquid.

The fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside. Traders, however, prefer to wait for a more hawkish outlook from the Fed before positioning for an extension of the appreciating move. Hence, the focus will be on the updated economic projections, the dot plot and Fed Chair Jerome Powell's post-meeting press conference.

From a technical perspective, the recent strong move up witnessed over the past one-and-half week or so pauses near a resistance marked by the top end of a multi-month-old ascending channel. This further warrants some caution before placing aggressive bullish bets around the USD/CAD pair.

Technical levels to watch