USD/CAD remains on the defensive around mid-1.3500s, downside seems cushioned

• USD/CAD edges lower on Wednesday amid the emergence of some selling around the USD.
• Bets for less aggressive Fed rate hikes, a positive risk tone weighs on the safe-haven buck.
• A softer tone around Crude Oil prices undermines the Loonie and helps limit the downside.
• Traders now look to the US macro data for some impetus ahead of Fed Chair Powell’s speech.

The USD/CAD pair comes under some selling pressure on Wednesday and retreats further from over a three-week high, around the 1.3645 region touched the previous day. The intraday downtick drags spot prices below the mid-1.3500s during the early part of the European session and is sponsored by a modest US Dollar downtick.

A combination of factors keeps the USD bulls on the defensive, which, in turn, is seen exerting some downward pressure on the USD/CAD pair. Investors seem convinced that the Fed will slow the pace of its policy tightening and have been pricing in a relatively smaller 50 bps lift-off in December. This is evident from a softer tone around the US Treasury bond yields, which, along with stability in the equity markets, weigh on the safe-haven buck.

The downside for the USD/CAD pair, however, seems cushioned amid a modest intraday downtick in Crude Oil prices, which tends to undermine the commodity-linked Loonie. Worries that fresh COVID-19 curbs in China will dent fuel demand overshadow speculations that OPEC will announce more supply cuts at its meeting on Sunday. This, in turn, fails to assist the black liquid to capitalize on this week's solid recovery move from the YTD low.

Furthermore, traders are likely to refrain from placing aggressive bets and prefer to wait for Fed Chair Jerome Powell's speech later during the US session. In the meantime, the US economic data - the ADP report on private-sector employment, Prelim Q3 GDP report and JOLTS Job Openings - might provide some impetus to the USD/CAD pair. Traders will further take cues from Oil price dynamics to grab short-term opportunities.

Technical levels to watch