USD/CAD braces for BoC near 1.3400 as Oil grinds higher, US Dollar struggles

• USD/CAD licks its wounds at the lowest levels in a month as Loonie traders brace for BoC.
• Oil price consolidates previous day’s losses amid mostly downbeat US Dollar, surprise draw in API inventories and market’s cautious optimism.
• US Dollar lacks momentum amid light calendar, pre-Fed blackout.
• BoC is likely to keep the benchmark rates unchanged but hawkish bias can propel the Loonie price.

USD/CAD picks up bids to rebound from the lowest levels in one month as it defends the 1.3400 threshold early Wednesday. In doing so, the Loonie pair prepares for the Bank of Canada (BoC) Interest Rate Decision, up for moving markets late in the day.

The Loonie pair’s latest corrective bounce could be linked to the WTI crude oil’s retreat from the intraday high, as well as the US Dollar’s pause at the daily low, amid sluggish markets.

That said, WTI crude oil remains mildly bid near $71.70 as it justifies a downbeat US Dollar and a surprise draw in the weekly Oil inventory data from the American Petroleum Institute (API). It should be noted that the global oil producers’ readiness for further output cuts joins improvement in China data to underpin the upbeat bias surrounding the black gold which is also a major export earner for Canada.

Elsewhere, US Dollar Index (DXY) reverses the previous day’s corrective bounce while taking offers around 104.00, down 0.10% on a day by the press time. In doing so, the greenback’s gauge versus six major currencies suffers from downbeat market bets on the Fed’s next move. That said, the interest rate futures show a nearly 15% probability of a June rate hike. The reason could be linked to downbeat United States activity data released on Monday, as well as the previously dovish comments from the Federal Reserve (Fed) Officials ahead of the pre-Fed blackout.

On Tuesday, Canada’s Ivey Purchasing Managers Index for May improved to 60.1 but the seasonally adjusted figures came in softer and prod the USD/CAD bears.

It should be noted that the 10-year coupons remain sluggish at around 3.67%, despite a recent corrective bounce, whereas the two-year counterpart rose a bit to 4.50% at the latest. While portraying the mood, S&P500 Futures print mild gains by tracking Wall Street’s performance.

Looking forward, Canadian statistics have been upbeat of late and hence the BoC may show readiness for further rate hikes if needed, which in turn can weigh on the USD/CAD price even if the Canadian central bank is expected to keep the rates unchanged at 4.5%.

Technical analysis

USD/CAD sellers remain hopeful unless witnessing a clear run-up beyond the previous support line stretched from mid-April, around 1.3445 by the press time