USD/CAD slides to one-week low amid post-US CPI USD downtick, holds above mid-1.3600s

• USD/CAD drifts lower for the third straight day and drops to a one-week low on Tuesday.
• The USD surrenders its modest gains in reaction to the US CPI report and exerts pressure.
• Bearish Crude Oil prices could undermine the Loonie and help limit any further downside.

The USD/CAD pair extends its recent pullback from the 1.3860 area, or its highest level since October 2022, and remains under some selling pressure for the third successive day on Tuesday. The intraday downfall picks up pace following the release of the US consumer inflation figures and drags spot prices to a one-week low, around the 1.3660 region during the early North American session.

The US Bureau of Labor Statistics reported that the headline CPI rose by 0.4% in February as compared to the 0.5% recorded in the previous month and the yearly rate decelerated from 6.4% to 6.0%. The data reaffirm market expectations that the Federal Reserve could slow, or even pause its rate-hiking cycle in the wake of the strain on the US banking system, which, in turn, exerts some pressure on the US Dollar and turns out to be a key factor weighing on the USD/CAD pair.

That said, the Core CPI, which excludes volatile food and energy prices, came in at 0.5% on a monthly basis, beating estimates for a reading of 0.4%. Apart from this, easing fears of a broader systemic crisis and the risk-on impulse remain supportive of an intraday rally in the US Treasury bond yields, which lends some support to the Greenback. Furthermore, bearish Crude Oil prices undermine the commodity-linked Loonie and might act as a tailwind for the USD/CAD pair.

This, along with the fact that the Bank of Canada (BoC) became the first major central bank to pause its rate-hiking cycle last week, supports prospects for the emergence of some dip-buying around the USD/CAD pair. Hence, it will be prudent to wait for strong follow-through selling before confirming that the recent positive move witnessed over the past month or so has run its course and positioning for any meaningful corrective decline for the major.

Technical levels to watch