USD/CAD ticks higher amid modest USD strength, lacks follow-through beyond mid-1.4300s

• USD/CAD trades with positive bias for the second successive day amid reviving USD demand.
• The recent decline in Oil prices and bets for more BoC rate cuts further undermines the Loonie.
• The mixed fundamental cues warrant some caution before placing aggressive directional bets.

The USD/CAD pair attracts some dip-buyers following the previous day's sharp retracement slide from the highest level since March 2020, though it struggles to capitalize on the move beyond the mid-1.4300s.

The US Dollar (USD) gains some positive traction and moves away from a two-week low retested on Tuesday amid a modest recovery in the US Treasury bond yields. The Canadian Dollar (CAD), on the other hand, is pressured by expectations that the Bank of Canada (BoC) will make continued rate cuts in 2025, bolstered by a fall in Canada’s annual inflation rate to 1.8% in December. Apart from this, the recent decline in Crude Oil prices undermines the commodity-linked Loonie and lends some support to the USD/CAD pair. 

Meanwhile, US President Donald Trump threatened to impose 25% tariffs on Canada and Mexico as soon as early February. Trump, however, did not outline any plans, which ease market concerns about the potential negative impact on the Canadian economy and helps limit losses for the CAD. Furthermore, bets that the Federal Reserve (Fed) will cut interest rates twice this year, along with a generally positive risk tone, keep a lid on the safe-haven buck and might hold back traders from placing bullish bets around the USD/CAD pair. 

Moreover, the recent range-bound price action witnessed over the past month or so warrants some caution before positioning for a firm near-term direction. Moving ahead, there isn't any relevant market-moving economic data due for release on Wednesday, either from the US or Canada, leaving spot prices at the mercy of the USD. Apart from this, Oil price dynamics could provide some meaningful impetus to the USD/CAD pair ahead of the crucial BoC and Fed policy decisions next week.