USD/CAD remains under pressure near 1.3430 ahead of Fed’s interest rate policy

• USD/CAD delivers a modest correction as investors remain cautious ahead of Fed policy.
• US Yellen said that she doesn’t see any signs that the economy will enter into a downturn.
• The Canadian Dollar strengthens as investors see further upside in the oil price on supply concerns

The USD/CAD pair remained subdued on Wednesday as investors await the monetary policy decision from the Federal Reserve (Fed). The Lonnie asset faces a nominal correction amid the rangebound US Dollar Index (DXY).

The USD Index corrects to near the crucial support of 105.00 as investors hope that the Fed will deliver a neutral interest rate policy, keeping interest rates unchanged at 5.25-5.50%. However, a hawkish interest rate outlook cannot be ruled out as remaining inflationary pressures in excess of the desired rate are most sticky.

The S&P500 is expected to open on a positive note, considering bullish cues from overnight funds. Meanwhile, investors would remain worried about the Fed policy as strong discussions about one more interest rate increase this year would trigger the risk-aversion theme and strengthen the US Dollar.

About the US economic outlook, US Treasury Secretary Janet Yellen on Monday said that she doesn’t see any signs that the economy will enter into a downturn as inflation is coming down and the labor market is quite strong. However, Yellen warned that a failure by Congress to pass the legislation to keep the government in control could elevate the risk of an economic slowdown.

Meanwhile, the Canadian Dollar strengthens as investors see further upside in the oil price on supply concerns due to production cuts by Saudi Arabia and Russia. It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices support the Canadian Dollar.

The Canadian Dollar remained volatile on Wednesday after a mixed inflation report for August. The annual headline inflation accelerated sharply to 4% against the estimates of 3.8% and the former release of 3.3%. The core CPI that excludes volatile oil and food prices expanded nominally by 0.1%, indicating subdued demand for non-durable goods and services. On an annualized basis, the core CPI rose to 3.3%.