USD/CAD remains confined in a narrow trading range around mid-1.3200s

• USD/CAD continues with its struggle to gain any meaningful traction on Tuesday.
• Softer Crude Oil prices undermine the Loonie and lend some support to the pair.
• Subdued USD price action acts as a headwind ahead of this week’s key releases.

The USD/CAD pair extends its sideways consolidative price move on Tuesday and remains confined in a familiar trading range, around mid-1.3200s through the Asian session.

The Canadian Dollar (CAD) is weighed down by last week's softer domestic data, showing that consumer inflation slowed to a nearly two-year low in May.  This weakens the case for another interest rate hike by the Bank of Canada (BoC) in July. Apart from this, a downtick in Crude Oil prices further undermines the commodity-linked Loonie and acts as a tailwind for the USD/CAD pair, though subdued US Dollar (USD) demand continues to cap the upside. This, in turn, warrants some caution before placing aggressive bets around the major and positioning for a firm near-term direction.

Despite supply woes from cuts for August by top exporters Saudi Arabia and Russia, Crude Oil prices remain on the defensive amid worries that a global economic downturn will dent fuel demand. It is worth recalling that Saudi Arabia said on Monday that it would extend its voluntary cut of one million bpd from output to August. Adding to this, Russia’s Deputy Prime Minister Alexander Novak announced that the country will also reduce its oil exports by 500,000 bpd in August. The news did provide a modest lift to the black liquid, though the immediate market reaction fades rather quickly.

The USD, on the other hand, continues with its struggle to gain any meaningful traction in the wake of the uncertainty over the Federal Reserve's (Fed) Rate hike path. It is worth recalling that the US central bank has signalled in June that borrowing costs may still need to rise as much as 50 bps by the end of this year and the outlook was reinforced by Fed Chair Jerome Powell last week. That said, the incoming US macro data has been fueling speculations that the central bank will soften its hawkish stance, sooner rather than later, which keeps the USD bulls on the defensive and caps the USD/CAD pair.

Traders also seem reluctant to place aggressive bets in the wake of the Independence Day holiday in the US and ahead of this week's important releases. The FOMC meeting minutes, due on Wednesday, will be scrutinized for fresh cues about the future rate-hike path, which will play a key role in driving the USD demand. The focus will then shift to the monthly employment details from the US and Canada, scheduled on Friday. This, along with Oil price dynamics, should help determine the next leg of a directional move for the USD/CAD pair.

Technical levels to watch