USD/CAD retreats from 1.3200 despite downbeat Oil price as US Dollar braces for Fed

• USD/CAD reverses from intraday high on softer US Dollar ahead of Federal Reserve Interest Rate Decision.
• Oil price prints the first daily loss in five amid mixed sentiment, receding optimism about China stimulus.
• Cautious markets, light calendar will restrict Loonie pair’s immediate moves ahead of FOMC.
• Fed Chair Powell’s speech will be crucial as 0.25% rate hike is priced in.

USD/CAD pares intraday gains around 1.3175 heading into Wednesday’s European session as the US Dollar stays pressured ahead of the Federal Open Market Committee (FOMC) monetary policy meeting announcements. In doing so, the Loonie pair ignores the recent weakness in the WTI crude oil price, Canada’s main export earner, amid a sluggish market.

US Dollar Index (DXY) remains depressed around the intraday low of 101.14, down for the second consecutive day after reversing from a two-week high the previous day, as market players fear the end of the Federal Reserve’s (Fed) monetary policy tightening. The reason could be linked to the early-week releases of PMIs, as well as the previously released inflation and employment clues. However, Tuesday’s US Conference Board (CB) Consumer Confidence and housing numbers have been promising and prod the dovish expectations from the US central bank.

On the other hand, WTI crude oil snaps a four-day winning streak while retreating from a three-month high, mildly offered near $79.15 by the press time, as China-inspired optimism fades. That said, Reuters reports that US 100-member Senate backed the amendment to the National Defense Authorization Act (NDAA) by 91 to 6. This means that the policymakers back legislation requiring US companies to report investment in China technologies like semiconductors and artificial intelligence (AI).  Apart from the US-China clues, Tuesday’s surprise build of the Oil inventories, per the American Petroleum Institute’s (API) weekly Crude Oil Stock Change data, also weighs on the black gold price.

It should be noted that the market sentiment dwindles amid a cautious mood ahead of the top-tier central bank monetary policy meetings and mixed concerns about the Sino-American ties, as well as receding optimism about Beijing’s push for more stimulus.

Amid these plays, S&P500 Futures seesaws around the one-week high marked the previous day, mildly bid near 4,600 by the press time. However, the US 10-year and two-year Treasury bond yields retreat from a two-week high registered Tuesday, close to 3.88% and 4.87% in that order at the latest.

Looking ahead, an absence of major data/events could restrict the USD/CAD pair’s moves ahead of the Fed’s verdict. Given the widely expected 0.25% rate hike, already priced in as well, the Loonie pair may need hawkish statements from Fed Chair Jerome Powell and a slump in the Oil price to convince buyers.

Technical analysis

USD/CAD grinds within the one-week-old symmetrical triangle, currently between 1.3210 and 1.3150, but the bears seem running out of fuel of late.