USD/CAD struggles near mid-1.3300s, seems vulnerable ahead of US PMIs

• USD/CAD remains under some selling pressure for the fourth straight day on Tuesday.
• Bullish crude oil prices underpin the Loonie and act as a headwind amid a weaker USD.
• Traders now eye the US macro data for some impetus ahead of the BoC on Wednesday.

The USD/CAD pair edges lower for the fourth successive day on Tuesday and remains depressed through the mid-European session. The pair is currently placed around mid-1.3300s, just a few pips above a one-week low touched on Monday and seems vulnerable to slide further.

Despite a softer risk tone, the safe-haven US Dollar struggles to capitalize on its modest intraday recovery from a nine-month low and acts as a headwind for the USD/CAD pair. Growing acceptance that the Fed will soften its hawkish stance amid signs of easing inflationary pressure turns out to be a key factor that continues to weigh on the greenback.

In fact, the markets have been pricing in a greater chance of a smaller 25 bps Fed rate hike move in February. This, along with softer US Treasury bond yields, keeps the USD bulls on the defensive. Apart from this, the recent rally in crude oil prices to over a one-month top underpins the commodity-linked Loonie and exerts pressure on the USD/CAD pair.

The aforementioned fundamental backdrop favours bearish traders and supports prospects for an extension of the USD/CAD pair's recent downward trajectory. Even from a technical perspective, last week's failure to find acceptance above the 100-day SMA validates the negative outlook and suggests that the path of least resistance for spot prices is to the downside.

Traders, however, seem reluctant to place aggressive bets and prefer to move to the sidelines ahead of this week's key central bank event/data risk. The Bank of Canada is scheduled to announce its policy decision on Wednesday. This will be followed by the Advance Q4 GDP print and the Core PCE Price Index from the US on Thursday and Friday, respectively.

Hence, it will be prudent to wait for some follow-through selling below the monthly low, around the 1.3320 area, before placing fresh bearish bets. Traders now look to the US macro data - the flash PMI prints and the Richmond Manufacturing Index, which might influence the USD. This, along with oil price dynamics should provide some impetus to the USD/CAD pair.

Technical levels to watch