USD/CAD Finds Support Amid Asian Session Buying

On Wednesday, the USD/CAD pair displayed a modest upward movement, indicating a regaining of positive momentum. However, the bullish sentiment appeared to lack conviction. The decline in oil prices exerted pressure on the Canadian dollar (also known as the Loonie) and contributed to the pair's ascent. Additionally, a mild strength in the US dollar (USD) further supported the USD/CAD pair.

Market participants exhibited caution and a preference for staying on the sidelines as they awaited the release of the Federal Open Market Committee (FOMC) minutes. During the Asian session on Wednesday, the USD/CAD pair experienced buying interest, distancing itself from the previous day's weekly low near the 1.3200 level. At present, spot prices are trading in the range of 1.3230-1.3235, reflecting a daily gain of approximately 0.10%.

Several factors played a role in supporting the pair's positive momentum. Concerns surrounding a global economic slowdown and its potential impact on fuel demand overshadowed expectations of reduced supply resulting from production cuts announced by major exporters such as Saudi Arabia and Russia. This acted as a headwind for crude oil prices, indirectly benefitting the USD/CAD pair. Moreover, recent weaker economic data from Canada, which revealed a slowdown in consumer inflation to a nearly two-year low in May, negatively impacted the commodity-linked Canadian dollar. The modest strength in the US dollar further aided the pair's upward movement.

The Federal Reserve's hawkish stance, signaling the possibility of raising borrowing costs by as much as 50 basis points by the end of the year, along with growing expectations of a 25 basis points rate hike at the upcoming July FOMC meeting, contributed to the support for elevated US Treasury bond yields. Consequently, this lent support to the US dollar, although the uncertainty surrounding the Fed's rate-hike trajectory limited the upside potential. Recent softer US macroeconomic data has raised doubts regarding the extent to which the Fed can continue its tightening cycle.

Therefore, the market's attention remains focused on the release of the June FOMC meeting minutes, scheduled for later in the US session. Investors will seek fresh insights into the Fed's policy outlook, which could significantly impact the US dollar ahead of the release of the US monthly jobs report (NFP) on Friday. This, in turn, could create short-term trading opportunities surrounding the USD/CAD pair. Traders on Wednesday will also monitor a meeting between oil industry executives and energy ministers from OPEC and its allies for additional cues.

Given the aforementioned fundamental backdrop, bullish traders hold a slight advantage. However, it would be prudent to await stronger confirmation of buying interest before considering a resumption of the recent recovery from the year-to-date (YTD) low reached last week.