USD/CAD eyes a break above 1.3550 amid hawkish Fed bets and weaker oil price

• USD/CAD is aiming to surpass the immediate resistance of 1.3550 as the risk-off mood solidifies.
• Weaker oil prices and declining Canada inflation are impacting the Canadian Dollar.
• Investors are awaiting the FOMC minutes release for the interest rate guidance.

The USD/CAD pair is demonstrating an inventory adjustment process around the immediate resistance of 1.3550 in the Asian session. The Loonie asset is expected to overstep the above-mentioned resistance confidently amid rising bets for more rates by the Federal Reserve (Fed) and declining oil prices.

S&P500 futures are displaying some gains in the Tokyo session after a super-bearish Tuesday as the upbeat preliminary United States S&P PMI data propelled hawkish Fed bets. This indicates a minor sense of optimism in an overall risk-off mood. In this case, investors should restrict themselves from building aggressive longs in the risk-perceived assets sooner.  The US Dollar Index (DXY) is likely to overstep the 103.90 hurdle amid the risk aversion theme.

The upbeat US PMI strictly speaks the language of consumer spending, which looks solid now and advocates for further policy tightening by Fed chair Jerome Powell. No doubt, plenty of signs are available that favor more restrictions on the monetary policy but investors will still await the release of the Federal Open Market Committee (FOMC) minutes for further guidance.

Meanwhile, the Canadian Dollar was in action on Tuesday after the release of the Consumer Price Index (CPI) and the Retail Sales data. The headline and core CPI dropped to 5.9% and 5.0% from their estimates, which indicates that higher interest rates by the Bank of Canada (BoC) are effectively softening the price pressures.

It is worth noting that BoC Governor Tiff Macklem has paused policy tightening for a while, citing that the current monetary policy is restrictive enough to tame inflation for now.

Contrary to the Canadian CPI, monthly Retail Sales (Dec) data expanded by 0.5% from the consensus of 0.2%. An expansion in consumer spending could dampen the softening price pressures ahead.

On the oil front, the oil price is declining towards $75.50 as the demand recovery in China is not parallel to the anticipation. Investors should note that Canada is a leading exporter of oil to the United States and lower oil prices could weaken the Canadian Dollar.