USD/CAD flat-lines around 1.3415 area, bulls have the upper hand above 100-day SMA

• USD/CAD struggles to gain any meaningful traction and oscillates in a range on Wednesday.
• A modest USD downtick acts as a headwind, though the downside is likely to remain limited.
• Bets for more rate hikes by the Fed should limit the USD losses and lend support to the pair.

The USD/CAD pair oscillates in a narrow trading band through the Asian session on Wednesday and currently trades around the 1.3415 region, nearly unchanged for the day. The overnight breakout through the 100-day Simple Moving Average (SMA), meanwhile, favours bulls and warrants caution before positioning for an extension of the overnight pullback from the 1.3500 psychological mark, or over a two-month high.

The US Dollar (USD) is weighed down by Philadelphia Federal Reserve Bank President Patrick Harker's dovish remarks on Tuesday, saying that they will probably start lowering the policy rate sometime next year. This, in turn, is seen as a key factor capping the upside for the USD/CAD pair, though the prospects for further policy tightening by the Fed should help limit any meaningful downside. In fact, the markets seem convinced that the US central bank will stick to its hawkish stance and keep interest rates higher for longer in the wake of an extremely resilient economy.

It is worth recalling that the closely-watched US monthly jobs report released last Friday pointed to the continued tightness in the labour market and raised the odds for a soft economic landing. Moreover, Fed Governor Michele Bowman kept alive hopes for one more 25 bps lift-off in September or November and said on Monday that additional interest rate hikes will likely be needed to lower inflation to the central bank's 2% target. This, along with a softer risk tone, supports prospects for the emergence of some buying around the safe-haven buck and should act as a tailwind for the USD/CAD pair.

In contrast, the Bank of Canada (BoC) is now expected to pause its interest rate hike campaign, especially after Statistics Canada reported that the economy shed 6,400 jobs in July and the jobless rate ticked up to 5.5%. Apart from this, a mildly softer tone around Crude Oil prices could undermine the commodity-linked Loonie and lend support to the USD/CAD pair. This, along with a sustained break and acceptance above a technically significant 100-day SMA, suggests that the path of least resistance for spot prices is to the downside and adds credence to the near-term positive outlook.

Technical levels to watch