USD/CAD drops to fresh multi-week low, struggles below 1.3400 ahead of BoC

• USD/CAD turns lower for the second straight day and drops to a nearly four-week low.
• A goodish intraday pickup in Oil prices underpins the Loonie and exerts some pressure.
• The emergence of fresh USD selling contributes to the slide ahead of the BoC decision.

The USD/CAD pair attracts fresh sellers following an intraday uptick to the 1.3425 area and turns lower for the second straight day on Wednesday. The downward trajectory extends through the first half of the European session and drags spot prices to a nearly four-week low, around the 1.3380 region in the last hour.

A goodish pickup in Crude Oil prices underpins the commodity-linked Loonie, which, along with the emergence of fresh selling around the US Dollar (USD), exerts downward pressure on the USD/CAD pair. the recent inflation and labour market data from the US kept alive hopes for a 25 bps lift-off at the June  FOMC meeting. That said, last week's dovish rhetoric by several Fed officials lifted bets for an imminent pause in the US central bank's policy tightening cycle. This leads to a further decline in the US Treasury bond yields and keeps the USD bulls on the defensive.

The upside for Oil prices, meanwhile, seems limited in the wake of worries that a global economic slowdown will dent fuel demand. The concerns resurfaced following the release of weaker Chinese data, which showed that the trade surplus sank to a 13-month low in May on the back of a surprise slump in exports. This, in turn, suggests that overseas demand for Chinese goods remained weak and poses additional headwinds for the world's second-largest economy. This overshadows additional supply cuts by Saudi Arabia/OPEC and could cap the black liquid.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the Bank of Canada (BoC) policy decision, due to be announced later during the North American session. The stronger-than-expected employment details and a slight pick-up in price pressures might have raised the possibility of another unanticipated hike by the BoC. Nevertheless, the latest monetary policy update, along with Oil price dynamics, should influence the Canadian Dollar (CAD) and produce short-term trading opportunities around the USD/CAD pair.

Technical levels to watch