USD/CAD consolidates in a range above 1.3300 as traders keenly await FOMC decision

• USD/CAD struggles to gain any meaningful traction and oscillates in a narrow band on Wednesday.
• Bets for an imminent Fed rate hike pause weigh on the USD and act as a headwind for the major.
• A softer risk tone lends support to the safe-haven buck and the pair ahead of the FOMC decision.

The USD/CAD pair struggles to capitalize on the overnight late rebound from the 1.3285 region, or a three-month low and remains on the defensive through the Asian session on Wednesday. Spot prices, however, manage to hold above the 1.3300 mark as traders keenly await the outcome of the high-anticipated FOMC monetary policy meeting before placing fresh directional bets.

The Federal Reserve (Fed) is scheduled to announce its decision later today and is widely expected to skip raising interest rates, bolstered by the below-consensus reading of the US consumer inflation. In fact, the US Labor Department reported on Tuesday that the headline CPI barely rose in May and the yearly rate decelerated from 4.9% to 4.0% - the smallest increase since March 2021. This, in turn, fails to assist the US Dollar (USD) to register any meaningful recovery from over a three-week low touched the previous day and acts as a headwind for the USD/CAD pair.

The year-on-year inflation rate, meanwhile, is still twice the Fed's 2% target and supports prospects for further policy tightening by the US central bank. It is worth recalling that the markets have been pricing in a greater chance of another 25 bps lift-off at the July FOMC meeting. Hence, the main focus will also be Fed Chair Jerome Powell's comments at the post-meeting presser, which will be closely scrutinized for clues about the future rate hike path. This will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the USD/CAD pair.

Heading into the key central bank event risk, investors' anxiety is evident from a generally softer tone around the equity market, which could offer some support to the safe-haven Greenback. Apart from this, a modest downtick in Crude Oil prices might undermine the commodity-linked Loonie and contribute to limiting the downside for the USD/CAD pair, at least for the time being. Worries that a global economic slowdown, particularly in China, will dent fuel demand fail to assist Crude Oil prices to capitalize on the overnight strong move up for the first day in the previous five.

Technical levels to watch