USD/CAD struggles near mid-1.2800s amid modest USD weakness, focus remains on FOMC

• USD/CAD is turning lower again on Wednesday amid the emergence of fresh USD selling.
• The risk-on impulse turned out to be a key factor that weighed on the safe-haven USD.
• Subdued crude oil prices could undermine the loonie and limit losses ahead of the FOMC.

The USD/CAD pair meets with a fresh supply on Wednesday and continues losing ground through the first half of the European session. Spot prices fell to a fresh daily low, around the 1.2850-1.2845 region in the last hour, reversing a major part of the overnight recovery gains from the lowest level since June 13.

A goodish recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - is seen weighing on the safe-haven US dollar. This turns out to be a key factor acting as a headwind for the USD/CAD pair, though subdued crude oil prices could undermine the commodity-linked loonie and help limit losses.

The black liquid, so far, has struggled to gain any meaningful traction amid concern about a weaker demand outlook and a looming interest rate hike by the Federal Reserve. That said, the overnight report of lower inventories in the United States largely offset the negative factors and offered some support to the commodity, at least for the time being.

Investors, meanwhile, also seem to refrain from placing aggressive bets and might prefer to wait for the outcome of a two-day FOMC monetary policy meeting. The Fed will announce its decision later during the US session and is expected to raise interest rates by 75 bps. Investors, however, remain divided over the need for more aggressive policy tightening.

Hence, the market focus would be on the accompanying monetary policy statement. Apart from this, Fed Chair Jerome Powell's comments at the post-meeting press conference could provide fresh clues about the near-term policy outlook. This will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the USD/CAD pair.

Hence, it would be prudent to wait for strong follow-through selling before traders start positioning for a further near-term depreciating move. Heading into the key central bank event risk, the US Durable Goods Orders data and the sentiment surrounding crude oil prices could assist traders to grab short-term opportunities around the USD/CAD pair.

Technical levels to watch