USD/CAD bears attack 1.3300 as Oil grinds higher, US Dollar dribbles ahead of Fed verdict

• USD/CAD fades bounce off the four-month low, remains pressured at intraday low of late.
• WTI pares weekly loss as a slump in US SPR renews Oil demand hopes, especially amid softer USD.
• US inflation favors bets suggesting a pause to Fed’s 1.5-year-old rate hike trajectory.
• FOMC projections, Powell’s Speech will be crucial for Loonie pair traders to watch for clear directions.

USD/CAD sellers occupy the driver’s seat, despite the sluggish US Dollar, as markets brace for the Federal Reserve Interest Rate Decision on early Wednesday. In doing so, the Loonie pair cheers recovery in Canada’s main export item, namely WTI crude oil, as well as hopes of witnessing no rate hike from the US central bank, while printing mild losses near 1.3300 at the latest.

WTI crude oil prints minor gains around $69.60 as it pares the weekly loss, consecutive third one in a row, amid pre-Fed consolidation. Also allowing the black gold buyers to remain firmer are the expectations of more Oil demand from the US as the world’s biggest economy runs outs of steam while keeping using the Strategic Petroleum Reserves (SPR) to tame the energy price. It’s worth observing that the US SPR is down 33% compared to one year ago levels as it prints 353M level in the recent update.

On the other hand, the US Dollar Index (DXY) remains indecisive at the lowest levels in three weeks, retreating from intraday high to 103.30 by the press time. In doing so, the greenback’s gauge versus the six major currencies suffers from the market’s dovish expectations from the US Federal Reserve (Fed).

As per the latest CME FedWatch Tool reading, there prevails more than a 90% chance of the US Federal Reserve’s (Fed) no rate hike during today’s monetary policy meeting, versus around 75% chance before that. The reason could be linked to the downbeat US inflation data. That said, the US Consumer Price Index (CPI) drops more-than-expected and prior releases to 0.1% MoM and 4.0% YoY. However, the Core CPI, known as the CPI ex Food & Energy, matches 0.4% monthly and 5.3% yearly forecasts. It’s worth noting that the US headline CPI dropped to the lowest since March 2021 and hence justifies the market’s expectations of witnessing no rate hike from the US Federal Reserve (Fed).

It should be noted that the cautious optimism in the markets, as portrayed by the S&P500 Futures and the US Treasury bond yields, also exert downside pressure on the US Dollar and the USD/CADA price.

Moving on, the US Producer Price Index (PPI) for May and the risk catalysts may entertain the USD/CAD pair traders ahead of the Fed’s verdict. That said, the US central bank’s economic forecasts, dot-plot and Chairman Jerome Powell’s press conference for clear directions.

Technical analysis

A daily closing below the previous key support line stretched from the mid-November 2022, near 1.3330 by the press time, directs USD/CAD towards the yearly low of 1.3262 marked in February.