USD/CAD remains confined in a range around 1.2900 mark, Canadian CPI/US data awaited

• USD/CAD is seen consolidating in a range just below a one-week high touched on Monday.
• A modest uptick in crude oil prices underpins the loonie and acts as a headwind for the pair.
• Recession fears, hawkish Fed expectations offer support to the USD and limit the downside.
• Investors eye the Canadian CPI report and US economic data for short-term trading impetus.

The USD/CAD pair struggles to capitalize on the overnight strong rally to a one-week high and witnesses subdued/range-bound price action on Tuesday. The pair remains confined in a narrow trading band through the early European session and is currently placed around the 1.2900 round-figure mark.

A modest uptick in crude oil prices offers some support to the commodity-linked loonie. The US dollar, on the other hand, is seen consolidating its strong gains recorded over the past two trading sessions. The combination of factors acts as a headwind for the USD/CAD pair, though the fundamental backdrop still seems tilted in favour of bullish traders.

The disappointing Chinese economic data released on Monday added to market worries about a global economic downturn, which could hit fuel demand and cap oil prices. Recession fears, along with hawkish Fed expectations, should continue to underpin the safe-haven USD and further contribute to limiting the downside for the USD/CAD pair, at least for the time being.

Despite last week's softer US CPI report, Fed officials stressed that it is too soon to declare a victory on inflation and have maintained a hawkish tone. This, in turn, suggested that the Fed would stick to its policy tightening path and remained supportive of elevated US Treasury bond yields, offering support to the buck ahead of the FOMC minutes on Wednesday.

The markets are currently pricing in a greater chance of at least a 50 bps rate hike at the September FOMC meeting. Hence, the minutes would be looked upon for clues about the possibility for a larger 75 bps move. This would play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the USD/CAD pair.

In the meantime, traders on Tuesday would take cues from the release of the latest Canadian consumer inflation report. The US economic docket, meanwhile, features housing market data and Industrial Production figures. This could drive the USD, which, along with the sentiment surrounding oil prices, would provide a fresh impetus to the USD/CAD pair.

Technical levels to watch