USD/CAD clings to gains above mid-1.3700s, lacks follow-through ahead of Canadian CPI

• USD/CAD regains positive traction on Wednesday and is supported by a combination of factors.
• Bearish oil prices undermine the loonie and act as a tailwind amid a pickup in the USD demand.
• Traders now look to the Canadian CPI report and the US housing market data for a fresh impetus.

The USD/CAD pair attracts fresh buying near the 1.3720-1.3715 region on Wednesday and maintains its bid tone through the first half of the European session. The pair is currently trading near the 1.3770-1.3765  area and seems poised to build on the previous day's bounce from over a one-week low.

The rising possibility of a global recession raises concerns about the outlook for energy demand and continues to weigh on crude oil prices. This is seen undermining the commodity-linked loonie, which, along with a goodish pickup in the US dollar demand, turn out to be key factors lending support to the USD/CAD pair.

Firming expectations for a more aggressive policy tightening by the Fed triggers a fresh leg up in the US Treasury bond yields and assists the US dollar to regain some positive traction. In fact, the current market pricing indicates a nearly 100% chance of another supersized 75 bps Fed rate hike in November.

The bets were reaffirmed by the overnight hawkish remarks by Minneapolis Fed President Neel Kashkari, reiterating the US central bank's commitment to bring inflation under control. Kashkari noted that the benchmark policy rate could rise above 4.75% if underlying inflation does not stop rising.

Apart from this, a turnaround in the global risk sentiment provides an additional lift to the safe-haven buck and remains supportive of the bid tone surrounding the USD/CAD pair. The market sentiment remains fragile amid worries that rapidly rising borrowing costs might lead to a deeper economic downturn.

Furthermore, concerns about economic headwinds stemming from the protracted Russia-Ukraine war and China's strict zero-COVID policy keep a lid on the recent optimistic move in the equity markets. Despite the supporting factors, the USD/CAD pair, so far, has been struggling to gain any meaningful traction.

Traders now seem reluctant and prefer to wait for the release of the latest Canadian consumer inflation figures. The US economic docket features housing market data - Building Permits and Housing Starts. This might provide some impetus to the USD/CAD pair later during the early North American session.

Technical levels to watch