USD/CAD sticks to modest gains around 1.3230-35 area, FOMC minutes in focus

• USD/CAD regains some positive traction on Wednesday, though lacks bullish conviction.
• Softer Oil prices undermines the Loonie and lends support amid a modest USD strength.
• Traders seem reluctant and prefer to wait on the sidelines ahead of the FOMC minutes.

The USD/CAD pair attracts some buying during the Asian session on Wednesday and moves further away from the weekly low, around the 1.3200 mark touched the previous day. Spot prices currently trade around the 1.3230-1.3235 region, up nearly 0.10% for the day, and draw support from a combination of factors.

Worries that a global economic slowdown will dent fuel demand overshadow expectations for tighter supply due to output cuts announced by top exporters - Saudi Arabia and Russia - and act as a headwind for Crude Oil prices. Apart from this, last week's softer Canadian data, which showed that consumer inflation slowed to a nearly two-year low in May, is seen undermining the commodity-linked loonie. This, along with a modest US Dollar (USD) strength, assists the USD/CAD pair to gain some positive traction.

The Federal Reserve's (Fed) hawkish outlook, signalling that borrowing costs may still need to rise as much as 50 bps by the end of this year, and rising bets for a 25 bps rate hike at the July FOMC meeting remain supportive of elevated US Treasury bond yeids. This, in turn, lends support to the USD, though the upside remains capped on the back of the uncertainty about the Fed's rate-hike path. In fact, the softer US macro data recently raised questions over how much headroom the Fed has to continue with its tightening cycle.

Hence, the market focus will remain glued to the release of the June FOMC meeting minutes, due later during the US session. Investors will look for fresh cues about the Fed's policy outlook, which should provide some meaningful impetus to the USD ahead of the US monthly jobs report (NFP) on Friday and produce short-term trading opportunities around the USD/CAD pair. Traders on Wednesday will further take cues from a meeting of oil industry executives with energy ministers from OPEC and its allies.

The aforemenitoned fundamental backdrop seems tilted slightly in favour of bullish traders, though it will be prudent to wait for strong follow-through buying before positioning for the resumption of the recent recovery from the YTD low touched last week.

Technical leels to watch