Ella 
During the Asian session on Tuesday, USD/CAD maintained a narrow range and consolidated its recent decline, falling to around the one-month low of 1.3470 hit the day before. However, as traders await the outcome of the much-anticipated Federal Reserve monetary policy meeting, USD/CAD still manages to stay above the key 200-day simple moving average (SMA), which is currently located around the 1.3460-1.3455 area.
The Federal Reserve is scheduled to announce an interest rate decision on Wednesday, and the market is generally expected to keep the Fed on hold. This has caused the U.S. dollar (USD) to remain depressed and fall below a six-month high. Meanwhile, crude oil prices remained near their highest levels since November 2022, supported by worries about tightening global supplies and hopes of a recovery in fuel demand in China, the world’s top oil importer. This in turn continues to boost the commodity-linked Canadian dollar and is bearish for USD/CAD.
Still, there is a growing consensus that the Fed will stick to its hawkish stance and keep interest rates higher while inflation remains subdued. This outlook remains supportive of higher U.S. bond yields and could help limit significant losses in USD/CAD. Traders may also be more willing to wait for new clues about the Fed’s path to raising interest rates in the future. Therefore, the focus will remain on the “dot plot” and inflation expectations, as well as comments from Fed Chairman Jerome Powell at Wednesday’s post-meeting press conference.
Meanwhile, traders on Tuesday will focus on the latest Canadian consumer inflation data due later in the U.S. session. Meanwhile, the U.S. is to release housing market data, namely building permits and housing starts. These data, along with oil price dynamics, may allow traders to seize short-term opportunities when key central bank event risks arrive, which will drive USD demand in the short term and determine the direction of USD/CAD.
