USD/CAD trims a part of intraday gains, remains below 1.3700 ahead of Canadian CPI

• USD/CAD regains positive traction on Tuesday and draws support from a combination of factors.
• Bearish Oil prices undermine the Loonie and lend some support amid a modest USD strength.
• Bets for a less hawkish Fed cap gains for the buck and the pair ahead of the Canadian CPI report.

The USD/CAD pair attracts some buying in the vicinity of the 1.3650 region on Tuesday and stick to its modest intraday gains through the early part of the European session. Spot prices, however, struggle to capitalize on the move and retreat a few pips from the 1.3700 neighbourhood, or a fresh daily high touched in the last hour.

Crude Oil prices come under some renewed selling pressure and languish just above a 15-month low touched the previous day amid worries that a deeper global economic downturn will dent fuel demand. This, in turn, is seen undermining the commodity-linked Loonie, which, along with a modest US Dollar recovery from its lowest level since February 14, acts as a tailwind for the USD/CAD pair. That said, a combination of factors keeps a lid on any meaningful upside for the buck and the major, at least for the time being.

The news that UBS will rescue Credit Suisse in a $3.24 billion deal helps ease fears of widespread contagion risk and boosts investors' confidence, which is evident from a generally positive tone around the equity markets. Apart from this, expectations that the Federal Reserve (Fed) will soften its hawkish stance to prevent any further economic pressure from high borrowing costs further contribute to capping the safe-haven Greenback. In fact, the current market pricing indicates a greater chance of a 25 bps Fed rate hike in March.

Market participants also expect that the US central bank might even cut rates during the second half of the year. The speculations were fueled by the collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank. This, in turn, should act as a headwind for the US bond yields and might hold back traders from placing aggressive bullish bets ahead of the key central bank event risk. The Fed is scheduled to announce its monetary policy decision at the end of a two-day meeting on Wednesday and drive the USD demand.

In the meantime, traders on Tuesday will take cues from the release of the latest Canadian consumer inflation figures, due later during the early North American session. The data, along with Oil price dynamics, will influence the Canadian Dollar and provide some impetus to the USD/CAD pair. Apart from this, the US economic docket - featuring Existing Home Sales data - will also be looked upon to grab short-term opportunities.

Technical levels to watch