Anna 
The USD/CAD pair is showing resilience, holding above last week’s swing low around the 1.3415 region for the third consecutive day. While the pair remains on the defensive, the lack of follow-through selling indicates a cautious market sentiment, and traders are exercising prudence before committing to aggressive bearish bets.
Several diverging forces are at play, contributing to the uncertainty in the market. Geopolitical tensions in the Middle East, particularly Houthi rebels’ increased attacks on vessels in the Red Sea and a drone attack on US forces by Iran-backed militant groups, have raised concerns about potential supply disruptions in the region. This has propelled Crude Oil prices to nearly a two-month high. However, profit-taking ahead of the OPEC+ meeting on February 1 is limiting the commodity’s ability to capitalize on the tensions. The Canadian Dollar (CAD), being commodity-linked, might face headwinds, supporting the USD/CAD pair.
The underlying bullish sentiment surrounding the US Dollar (USD) is also playing a role in providing support to the USD/CAD pair. Progress toward the Federal Reserve’s 2% inflation target suggests a cautious approach to tightening monetary policy, contributing to the USD’s strength. Strong demand from US consumers, as indicated by the Personal Income and Spending data released on Friday, along with the upbeat US Q4 GDP print, reinforces the notion that the US economy remains robust. This allows the Fed to maintain higher interest rates for an extended period.
Traders are exercising caution and refraining from aggressive bets as they await the outcome of the highly-anticipated FOMC monetary policy meeting on Wednesday. The release of crucial US macroeconomic data, including the Nonfarm Payrolls (NFP) report on Friday, is expected to drive USD demand and provide meaningful impetus to the USD/CAD pair. In the absence of significant economic releases from the US or Canada on Monday, Oil price dynamics and geopolitical developments are likely to influence short-term trading opportunities.
