USD/CAD draws support from bearish Oil prices, weaker USD to cap gains ahead of US CPI

• USD/CAD ticks higher for the second straight day, albeit lacks follow-through buying.
• Bearish Crude Oil prices undermine the Loonie and act as a tailwind for the major.
• The emergence of fresh USD selling bias caps gains ahead of the crucial US CPI report.

The USD/CAD pair gains some positive traction for the second successive day on Tuesday and looks to build on the overnight bounce from the 1.3315-1.3310 area, or a one-month low. The pair trades around the 1.3375 region during the Asian session, up less than 0.10% for the day, and draws support from the recent slump in Crude Oil prices.

Worries that a global economic slowdown, particularly in China, will dent fuel demand drag Crude Oil prices to the lowest level since early May on Monday, which, undermines the commodity-linked Loonie and acts as a tailwind for the USD/CAD pair. The upside, however, remains capped in the wake of a fresh US Dollar (USD), led by firming expectations that the Federal Reserve (Fed) will more likely skip hiking interest rates in June.

In fact, the recent dovish rhetoric by a slew of influential FOMC members reaffirmed market expectations about an imminent pause in the US central bank's year-long policy tightening cycle. This represents a divergence in comparison to the Bank of Canada's (BoC) surprise 25 bps rate hike last week, which might further contribute to capping gains for the USD/CAD pair and warrants some caution before placing aggressive bullish bets.

Traders might also prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures, due later during the early North American session. A stronger US CPI print will further lift bets for another 25 bps lift-off at the July FOMC meeting and provide a goodish lift to the buck. The immediate market reaction, however, is likely to remain limited ahead of the highly-anticipated Fed decision on Wednesday.

Apart from this, a modest downtick in the US Treasury bond yields might continue to act as a headwind for the Greenback. This further makes it prudent to wait for strong follow-through buying before confirming that the USD/CAD pair has formed a near-term bottom ahead of the 1.3300 mark and positioning for any meaningful appreciating move.

Technical levels to watch