The USD/CAD pair appears to be consolidating its recent gains, trading within a narrow range during the first half of the European session on Wednesday. The spot prices are managing to stay above the psychological level of 1.3500 as traders eagerly await the release of the Federal Open Market Committee (FOMC) meeting minutes, which are expected to provide insights into the Federal Reserve’s rate-cut path.
Investors will closely scrutinize the minutes for signals regarding the Fed‘s stance on interest rates, a factor that could significantly influence the USD’s price dynamics and offer fresh directional guidance to the USD/CAD pair. As market participants fully discount the possibility of imminent rate cuts by the Fed, the USD has found support from elevated US Treasury bond yields. This, coupled with a softer risk tone, contributes to the USD’s safe-haven appeal and helps limit downside pressure on the currency pair.
Concurrently, expectations of the Fed maintaining higher interest rates for an extended period have dampened the outlook for fuel demand, leading to a decline in Crude Oil prices for the second consecutive day. Weaker-than-expected Canadian consumer inflation data released on Tuesday has further undermined the commodity-linked Canadian Dollar (CAD), lending support to the USD/CAD pair. The Canadian CPI decelerated to a 2.9% year-on-year rate in January, while core inflation measures dropped to their lowest levels in over two years.
Despite these factors, concerns about potential disruptions to the oil supply from the Middle East persist following a series of attacks in the Red Sea by Houthi rebels in Yemen. This geopolitical uncertainty could act as a tailwind for oil prices and prevent traders from aggressively betting against the Canadian Dollar.
The recent range-bound price action observed over the past two weeks suggests a cautious approach, with traders awaiting relevant economic data, particularly the FOMC meeting minutes, before confirming a clear near-term direction for the USD/CAD pair.
