USD/CAD remains depressed below 1.3800 amid uptick in oil prices, softer USD

• A combination of factors prompts some selling around USD/CAD on Wednesday.
• Rebounding oil prices underpin the loonie and exert pressure amid a softer USD.
• The downside seems limited as traders look to FOMC minutes for fresh impetus.

The USD/CAD pair attracts some selling near the 1.3830 area on Wednesday and retreats further from its highest level since May 2020 touched the previous day. The pair remains depressed through the first half of the European session and is currently flirting with the daily low, around the 1.3770 region.

Crude oil prices regain positive traction and recover a part of the losses recorded over the past two trading sessions, which, in turn, underpins the commodity-linked loonie. Apart from this, a generally positive risk tone is acting as a headwind for the safe-haven US dollar and exerting downward pressure on the USD/CAD pair. That said, a combination of factors should help limit the downside and warrants caution for aggressive bearish traders.

Investors remain worried that a deeper global economic downturn and rising COVID-19 cases in China will hurt global fuel demand. This, to a larger extent, overshadows the OPEC+ decision to slash production by about 2 million bpd - the largest reduction since the 2020 COVID pandemic - and cap gains for the black liquid. Apart from this, rising bets for more aggressive Fed rate hikes favour the USD bulls and should lend support to the USD/CAD pair.

Investors seem convinced that the US central bank will tighten its monetary policy at a faster pace to tame inflation and have been pricing in another supersized 75 bps rate increase in November. Hence, the focus remains on the FOMC minutes due later this Wednesday, which will be followed by the US consumer inflation data on Thursday. This will be looked upon for clues about the Fed's rate hike path, which will influence the near-term USD price dynamics.

Nevertheless, the bias still seems tilted in favour of bullish traders and supports prospects for the emergence of some dip-buying around the USD/CAD pair. From a technical perspective, repeated failures ahead of mid-1.3800s make it prudent to wait for strong follow-through buying before positioning for any further near-term appreciating move.

Technical levels to watch