USD/CAD holds steady above 1.3200 mark, traders await Powell’s semi-annual testimony

• USD/CAD struggles to capitalize on its modest recovery gains recorded over the past two days.
• A goodish pickup in Crude Oil prices underpins the Loonie and acts as a headwind for the major.
• A modest USD strength should help limit the downside ahead of Fed Chair Powell’s testimony.

The USD/CAD pair extends the previous day's late pullback from the 1.3270 area and edges lower during the Asian session on Wednesday, albeit lacks follow-through selling. Spot prices currently trade around the 1.3230-1.3225 area, down less than 0.10% for the day, and manage to hold comfortably above the YTD low touched last Friday.

A modest uptick in Crude Oil prices underpins the commodity-linked Loonie, which, in turn, is seen as a key factor acting as a headwind for the USD/CAD pair. The downside, however, remains cushioned in the wake of a mildly positive tone surrounding the US Dollar (USD), which continues to draw support from the Federal Reserve's (Fed) hawkish outlook. It is worth recalling that the US central bank last week signalled that borrowing costs may still need to rise as much as 50 bps by the end of this year.

In fact, the markets are now pricing in another 25 bps lift-off at the July FOMC meeting and the expectations were reaffirmed by Tuesday's upbeat US housing market data. Apart from this, the overnight slump in the US equity markets, led by worries about a global economic slowdown, benefits the safe-haven Greenback and lends support to the USD/CAD pair. The USD bulls, however, refrain from placing aggressive bets amid speculations that the Fed is nearing the end of its rate-hiking cycle.

Hence, the market focus remains glued to Fed Chair Jerome Powell's two-day congressional testimony, starting this Wednesday. Investors will closely scrutinize Powell's remarks for fresh clues about the Fed's future rate-hike path. This, along with speeches by a slew of influential FOMC members, will drive the USD demand and provide some impetus to the USD/CAD pair. Traders will also look to Canadian Retail Sales data and Oil price dynamics to grab some meaningful trading opportunities.

Technical levels to watch