USD/CAD sticks to intraday gains, remains below 1.3600 ahead of FOMC decision

• USD/CAD gains some positive traction on Wednesday, though lacks follow-through.
• A further recovery in crude oil prices underpins the Loonie and acts as a headwind.
• Bearish USD further contributes to capping gains ahead of the key FOMC decision.

The USD/CAD pair attracts some buying near the 1.3530 region on Wednesday and recovers a part of the previous day's losses. The pair maintains its bid tone through the early North American session and is currently placed just a few pips below the daily low, around the 1.3570-1.3575 zone.

The intraday uptick could be solely attributed to some repositioning trade ahead of the key central bank event risk, though a combination of factors caps the upside for the USD/CAD pair. Crude oil prices gain traction for the third straight day and move further away from the YTD low set last week, which in turn, is seen undermining the commodity-linked Loonie. The US Dollar, on the other hand, languishes near its lowest level since late June touched on Tuesday in the aftermath of softer US CPI and acts as a headwind for the major.

The downside for the USD/CAD pair, meanwhile, is likely to remain limited as traders keenly await the highly-anticipated FOMC decision. The US central bank is widely expected to deliver a relatively smaller 50 bps rate hike at the end of a two-day policy meeting. Furthermore, early indicators suggest that the markets are pricing a 25 bps rate hike at the next FOMC meeting in February 2023. Hence, investors will scrutinize the accompanying policy statement and the so-called dot plot for the Fed's near-term policy outlook.

The outcome will play a key role in driving the USD demand in the near term and provide some meaningful impetus to the USD/CAD pair. Ahead of the crucial event, US crude inventory data from the Energy Information Administration will influence oil price dynamics and allow traders to grab short-term opportunities around the major.

Technical levels to watch